<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 31, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CAMBRIDGE HEART, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 3845 13-3679946
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION
INCORPORATION OR NUMBER)
ORGANIZATION)
---------------
1 OAK PARK DRIVE, BEDFORD, MA 01730
(617) 271-1200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JEFFREY M. ARNOLD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CAMBRIDGE HEART, INC.
1 OAK PARK DRIVE
BEDFORD, MA 01730
(617) 271-1200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
JOHN A. BURGESS, ESQ. DAVID J. BEVERIDGE, ESQ.
STEVEN D. SINGER, ESQ. SHEARMAN & STERLING
HALE AND DORR 599 LEXINGTON AVENUE
60 STATE STREET NEW YORK, NEW YORK 10022
BOSTON, MASSACHUSETTS 02109 (212) 848-4000
(617) 526-6000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE
SECURITIES TO BE TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED(1)(3) PER SHARE(2) PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share....... 3,450,000 shares $13.00 $44,850,000 $15,466
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 450,000 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any. See "Underwriting".
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
(3) The shares of Common Stock are not being registered for the purpose of
sale outside the United States.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CAMBRIDGE HEART, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND CAPTION LOCATION IN PROSPECTUS
---------------------- ----------------------
<S> <C>
1.Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.......................... Outside Front Cover Page
2.Inside Front and Outside Back Cover
Pages of Prospectus................. Inside Front Cover Page; Outside
Back Cover Page
3.Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.. Prospectus Summary; Risk Factors;
The Company
4.Use of Proceeds....................... Prospectus Summary; Use of Proceeds
5.Determination of Offering Price....... Underwriting
6.Dilution.............................. Dilution
7.Selling Security Holders.............. Not Applicable
8.Plan of Distribution.................. Outside Front Cover Page;
Underwriting
9.Description of Securities to be
Registered.......................... Description of Capital Stock
10.Interests of Named Experts and
Counsel............................. Legal Matters; Experts
11.Information With Respect to the
Registrant:
(a)Description of Business............. Business
(b)Description of Property............. Business--Facilities
(c)Legal Proceedings................... Not Applicable
(d)Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters....... Front Cover Page; Dividend Policy;
Description of Capital Stock;
Shares Eligible for Future Sale
(e)Financial Statements................ Financial Statements; Capitalization
(f)Selected Financial Data............. Selected Financial Data
(g)Supplementary Financial
Information....................... Not Applicable
(h)Management's Discussion and Analysis
of Financial Condition and Results Management's Discussion and Analysis
of Operations..................... of Financial Condition and Results
of Operations
(i)Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.............. Not Applicable
(j)Directors, Executive Officers,
Promoters and Control Persons..... Management--Executive Officers and
Directors; Certain Transactions
(k)Executive Compensation.............. Management--Executive Compensation
(l)Security Ownership of Certain
Beneficial Owners and Management.. Principal Stockholders
(m)Certain Relationships and Related
Transactions...................... Certain Transactions
12.Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 31, 1996
3,000,000 SHARES
[LOGO] CAMBRIDGE HEART, INC.
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
-----------
Of the 3,000,000 shares of Common Stock offered, 2,400,000 shares are being
offered hereby in the United States and 600,000 shares are being offered in a
concurrent International Offering outside the United States.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $11.00 and $13.00. For the factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "CAMH".
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIESAND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HASTHE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share............................... $ $ $
Total(3)................................ $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(2) Before deducting estimated expenses of $625,000 payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 360,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover over-
allotments. Additionally, the Company has granted an over-allotment option
with respect to an additional 90,000 shares as part of the International
Offering. If such options are exercised in full, the total initial public
offering price, underwriting discount and proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting".
-----------
The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York on
or about , 1996, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. BEAR, STEARNS & CO. INC.
-----------
The date of this Prospectus is , 1996.
<PAGE>
[GRAPH RE: CARDIAC DEATH DATA] [PHOTO OF ELECTRODES]
The Company has developed
Sudden cardiac death is a proprietary, disposable electrodes
public health problem accounting for use in connection with its T-wave
for approximately one-half of all alternans technology which it believes
cardiac deaths. will provide a recurring source of
revenue.
[PHOTO OF CH 2000 SYSTEM]
Cambridge Heart's CH 2000 System, a new stress
test system, utilizes disposable electrodes and
signal processing techniques to measure T-wave
alternans down to one-millionth of a volt. T-wave
alternans is an alternating pattern in the ECG
which has been associated with sudden death and
with life threatening heart rhythm disturbances.
[DEPICTION OF T-WAVE ALTERNANS] [GRAPH OF STUDY RESULTS]
Most of those who suffer sudden In a study published in the New
cardiac death have an underlying England Journal of Medicine, T-Wave
electrical disorder which puts them alternans predicted the occurrence
at risk of ventricular tachycardia of life-threatening heart rhythm
or fibrillation--life threatening disturbances with accuracy comparable
heart rhythm disturbances. to that of the most accurate invasive
test.
----------------
The Company intends to furnish to its stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
interim financial information for the first three fiscal quarters of each
fiscal year of the Company.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the Company's financial statements and related notes
thereto included elsewhere in this Prospectus. Investors should carefully
consider the information set forth under the heading "Risk Factors". Except as
otherwise noted herein, all information contained in this Prospectus (i) gives
effect to a 1-for-2 reverse split of the Common Stock to be effective prior to
the closing of this Offering, (ii) reflects the conversion of all outstanding
shares of the Company's Series A and B Convertible Preferred Stock (the
"Preferred Stock") into an aggregate of 4,455,708 shares of Common Stock, and
(iii) assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
Cambridge Heart, Inc. ("Cambridge Heart" or the "Company") is engaged in the
research, development and commercialization of products for the non-invasive
diagnosis of cardiac disease. Using innovative technologies, including
proprietary disposable electrodes, the Company is addressing such key problems
in cardiac diagnosis as (i) the identification of those at risk of sudden
cardiac death, accounting for of approximately 50% of all deaths due to heart
attack, (ii) the early detection of coronary artery disease and (iii) the
prompt and accurate diagnosis of heart attack.
With the emergence of new preventive therapies for sudden cardiac death
(implantable defibrillators and radio frequency ablation), the Company believes
that the accurate diagnosis of patients needing these therapies has become
increasingly important. Existing non-invasive diagnostic tests generally either
identify only a small subset of patients who are at risk of sudden cardiac
death or are insufficiently accurate to warrant further invasive study or
treatment. The Company believes that its technologies provide a solution to
these shortcomings. The Company's lead product, the CH 2000 System, is designed
to perform conventional cardiac stress tests as well as to incorporate the
Company's proprietary technology to non-invasively measure extremely low levels
of T-wave alternans, a beat-to-beat alternation in a portion of the
electrocardiogram ("ECG" or "EKG"). Clinical research published to date has
demonstrated that T-wave alternans is associated with vulnerability to
ventricular arrhythmias responsible for sudden cardiac death, to a degree
comparable to electrophysiology ("EP") testing, the most accurate invasive
test.
The Company is also conducting research and development on its cardiac
electrical imaging ("CEI") technology for the diagnosis of coronary artery
disease and the detection of acute myocardial infarction. The Company is
evaluating this technology both for incorporation into the CH 2000 System and
for stand-alone use in hospital emergency rooms.
The Company's T-wave alternans and CEI technologies require the use of its
proprietary disposable Hi-Res and Laplacian electrodes, respectively, which the
Company believes will provide a recurring source of revenue. The Company
anticipates that it will be the sole provider of these single-use electrodes
due to their proprietary nature.
The Company owns or is the exclusive licensee of seven patents issued or
allowed and six patents pending in the United States, with 17 corresponding
foreign patents issued or pending with respect to its technology.
The Company's CH 2000 System has received 510(k) clearance from the FDA for
sale in the United States for the purposes of performing standard stress tests
and measuring T-wave alternans. This clearance, however, does not include a
labeling claim covering the applicability or prognostic use
3
<PAGE>
of the T-wave alternans measurement. The Company is currently conducting
further clinical studies and expects to make a subsequent 510(k) submission in
the first half of 1997 with respect to the prognostic value of the Company's T-
wave alternans technology. The Company has chosen to limit sales of the CH 2000
System in the United States to a limited number of clinical sites until its
proprietary Hi-Res electrodes receive FDA clearance. The Company filed a 510(k)
pre-market notification for the Hi-Res electrodes in May 1996. The CH 2000
System has received the CE mark for sale in Europe, and application has been
made for approval with the Ministry of Health in Japan.
The Company intends to market the CH 2000 System domestically through a
direct sales force and distributors and internationally through distributors.
The Company has entered into agreements with Kontron Instruments Ltd.
("Kontron"), a leading supplier of patient monitoring and cardiac diagnostic
equipment in Europe, for distribution of the CH 2000 System in Europe and the
Middle East, and Fukuda Denshi Co., Ltd. ("Fukuda Denshi"), the leading
supplier of stress test and ECG equipment in Japan, for distribution of the
system in Japan.
The Company was incorporated in Delaware in 1990. The Company's principal
office is located at 1 Oak Park Drive, Bedford, MA 01730 and its telephone
number is (617) 271-1200.
CH 2000(TM) and Hi-Res(TM) are trademarks of the Company. All other trade
names and trademarks appearing in this prospectus are the property of their
respective holders.
----------------
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered:
U.S. Offering......................... 2,400,000 shares
International Offering................ 600,000 shares
Total................................ 3,000,000 shares
Common Stock to be outstanding after
the Offering.......................... 10,663,871 shares(1)
Use of proceeds........................ Research and development, clinical
studies, capital equipment, sales and
marketing, and for working capital and
other general corporate purposes.
Proposed Nasdaq National Market
symbol................................ CAMH
</TABLE>
- --------
(1) Excludes 1,763,037 shares of Common Stock issuable upon the exercise of
options and warrants outstanding as of May 1, 1996. See "Dilution",
"Capitalization", "Certain Transactions" and "Description of Capital
Stock".
The offering of 2,400,000 shares of Common Stock initially being offered in
the United States (the "U.S. Offering") and the offering of 600,000 shares of
Common Stock initially being offered outside the United States (the
"International Offering") are collectively referred to herein as the
"Offering". The closing of the International Offering is conditioned upon the
closing of the U.S. Offering and vice versa.
RISK FACTORS
The shares offered hereby involve a high degree of risk, and prospective
purchasers should carefully consider the factors described under "Risk
Factors".
4
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Product revenue......... $ -- $ -- $ 68 $ -- $ 55
Revenue from research
and option agreement... -- 25 -- -- --
Cost of goods sold...... -- -- 141 -- 49
Costs and expenses:
Research and develop-
ment................. 589 1,124 1,560 414 353
Selling, general and
administrative....... 321 724 1,110 191 366
---------- ---------- ---------- ---------- ----------
Loss from operations.... $ (910) $ (1,823) $ (2,743) $ (605) $ (713)
Interest income, net.... 27 164 246 44 47
---------- ---------- ---------- ---------- ----------
Net loss................ $ (883) $ (1,659) $ (2,497) $ (561) $ (666)
========== ========== ========== ========== ==========
Pro forma net loss per
share.................. $ (0.33) $ (0.08)
========== ==========
Pro forma weighted
average common and
common equivalent
shares outstanding(1).. 7,564,108 7,938,872
========== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED(2)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 3,027 $35,882
Working capital......................................... 3,149 36,004
Total assets............................................ 3,536 36,391
Total liabilities....................................... 182 182
Accumulated deficit..................................... (5,747) (5,747)
Stockholders' equity.................................... 3,353 36,208
</TABLE>
- --------
(1) For the year ended December 31, 1995 and the three months ended March 31,
1996, pro forma weighted average common and common equivalent shares
outstanding consist of 7,233,875 and 7,619,861 shares of Common Stock,
respectively, after giving effect to the reverse stock split and the
conversion of preferred stock upon the completion of the Offering and
including 330,233 and 319,011 shares, respectively, attributable to options
granted in the twelve month period prior to the Offering using the if-
converted method.
(2) Gives effect to the sale of 3,000,000 shares of Common Stock offered by the
Company in the Offering hereby at an assumed initial public offering price
of $12.00 per share and the application of the net proceeds therefrom,
after deducting the estimated underwriting discount and offering expenses
payable by the Company. See "Use of Proceeds".
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information
contained in this Prospectus, should be carefully considered in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby. This Prospectus contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such differences include those discussed below.
DEVELOPMENT STAGE COMPANY; HISTORY OF OPERATING LOSSES
The Company is a development stage company and since inception has engaged
primarily in research, development, testing and obtaining regulatory
clearances for its products. To date, sales of its CH 2000 System have been
limited to participants in clinical trials and the Company's distributor in
Japan. The Company is required to obtain regulatory clearance for significant
aspects of its technology. See "--Uncertainties Relating to Technological
Approaches of the Company" and "--Government Regulation; Future Product
Approvals Uncertain". As of March 31, 1996, the Company had an accumulated
deficit of approximately $5,747,000 and had a net loss of approximately
$2,497,000 for the year ended December 31, 1995. The Company expects to incur
substantial and increasing net losses for the foreseeable future as a result
of sales and marketing, research and product development, manufacturing and
other expenses expected to be incurred as the Company further commercializes
the CH 2000 System and expands its product offerings. There can be no
assurance that the Company will ever generate substantial revenues or achieve
profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
NO ASSURANCE OF MARKET ACCEPTANCE; SUBSTANTIAL DEPENDENCE ON SINGLE PRODUCT
To date, the Company has developed only one product for commercial sale, the
CH 2000 System, and its other products are at an early stage of development
and significant aspects of the Company's technology are awaiting clearance.
The Company believes that its future success substantially depends upon
successful commercialization and market acceptance of the CH 2000 System
incorporating the Company's T-wave alternans technology. The analysis of T-
wave alternans to diagnose ventricular arrhythmias is a new diagnostic
approach that is currently investigational. The Company has not yet applied
for clearance from the U.S. Food and Drug Administration (the "FDA") for a
labelling claim covering the applicability or prognostic use of its T-wave
alternans technology. In addition, the Company's proprietary Hi-Res
electrodes, which are required for the effective implementation of the CH 2000
System, have not received regulatory clearance. Market acceptance will depend
upon the Company's ability to obtain regulatory clearance or approval for its
Hi-Res electrodes and for claims covering the applicability or prognostic use
of T-wave alternans measurement, as well as its ability to demonstrate the
diagnostic advantages, cost-effectiveness and performance features of the CH
2000 System. Market acceptance will also be driven in large part by acceptance
of the CH 2000 System by influential physicians. There can be no assurance
that the Company will be able to successfully commercialize or achieve market
acceptance of the CH 2000 System or that the Company's competitors will not
develop competing technologies that are superior to those of the Company.
Failure by the Company to successfully commercialize or achieve market
acceptance of the CH 2000 System would have a material adverse effect on the
Company's business, financial condition and results of operations.
UNCERTAINTIES RELATING TO TECHNOLOGICAL APPROACHES OF THE COMPANY
The Company intends to develop and sell products which are based upon T-wave
alternans analysis and cardiac electrical imaging technologies that have not
previously been applied to cardiac diagnostic products. There can be no
assurance that a market will develop or that the ultimate size of such market
will justify the Company's significant investment in commercializing its
products. The Company has sponsored and is continuing to sponsor a number of
clinical studies relating to the
6
<PAGE>
CH 2000 System, its T-wave alternans technology and its Hi-Res electrodes to
establish the prognostic value of its T-wave alternans technology. While these
studies and third-party studies on high risk patients to date have indicated
that T-wave alternans is associated with ventricular arrhythmia to a degree
comparable to EP testing, there can be no assurances that the results of such
studies will continue to do so. Any results of clinical studies or trials
which fail to demonstrate that T-wave alternans is comparable in accuracy to
alternative diagnostic tests, or which otherwise call into question the cost-
effectiveness, efficacy or safety of this, or other Company technologies,
would have a material adverse effect on the Company's business, financial
condition and results of operations. The development of commercial products
based upon these technologies will also be subject to the risks typically
inherent in the development of products based on new technologies. These risks
include the possibility that any diagnostic products based on these
technologies will be found to be ineffective or inaccurate, or otherwise fail
to receive necessary regulatory clearances or approvals; that the proprietary
rights of third parties will preclude the Company or its distributors from
marketing products; or that third parties will market equivalent or superior
products. The Company is currently conducting further clinical studies and
expects to make a subsequent 510(k) submission in the first half of 1997 with
respect to the prognostic value of the Company's T-wave alternans technology.
However, there can be no assurance that the results of such studies will
support such submission or that regulatory clearance will be received. In
addition, there can be no certainty that products incorporating alternative
technologies in which the Company has limited expertise will not be introduced
and adversely affect demand for the Company's products. As a result, there can
be no assurance that the Company's development activities will result in
commercially viable products. Failure to develop commercially viable products
would have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE UPON LICENSES
The Company and the Massachusetts Institute of Technology ("MIT") have
entered into four license agreements (the "MIT License Agreements"), pursuant
to which the Company is the exclusive licensee of certain technologies upon
which the Company's current and future products are based, including certain
patents associated therewith. These technologies, including the T-wave
alternans analysis technology incorporated in the Company's CH 2000 System,
and technologies relating to cardiac electrical imaging, pacing for the
prevention of cardiac arrhythmias and cardiovascular identification, are of
material importance to the Company. These licenses are exclusive until 2007;
thereafter, each license will convert to a nonexclusive license, and will last
for the life of the applicable patents, unless extension of exclusivity is
agreed to by MIT. In addition, the Company has entered into a license
agreement with Dr. Richard Cohen, a founder, director of, and consultant to,
the Company (the "Cohen License Agreement"), pursuant to which the Company is
the exclusive licensee of certain technology developed by Dr. Cohen which the
Company may include in its future products. These license agreements impose
various commercialization, sublicensing, insurance, royalty, product liability
indemnification and other obligations on the Company. Failure by the Company
to comply with these requirements could result in conversion of the licenses
from being exclusive to nonexclusive in nature or, in some cases, termination
of the license. The loss of the Company's exclusive rights to the technology
licensed under these license agreements or their termination could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Patents, Trade Secrets and Proprietary
Rights" and "Certain Transactions".
GOVERNMENT REGULATION; FUTURE PRODUCT APPROVALS UNCERTAIN
The Company's products, product development activities, manufacturing
processes and sales and marketing are subject to extensive and rigorous
regulation by the FDA and comparable agencies in foreign countries. In the
United States, the FDA regulates the introduction of medical devices as well
as manufacturing, labeling and record keeping procedures for such products. In
order for the Company to market its products for clinical use in the United
States, the Company must obtain from the FDA clearance of a 510(k) pre-market
notification, or approval of a more extensive submission known as pre-market
approval ("PMA") application. The process of obtaining marketing clearance or
approval for
7
<PAGE>
new medical devices from the FDA can be costly and time consuming, and there
can be no assurance that such clearance or approval will be granted for the
Company's future products on a timely basis, if at all, or that FDA review will
not involve delays that will adversely affect the Company's ability to
commercialize additional products or expand permitted uses of existing
products.
A 510(k) pre-market notification requires the manufacturer of a medical
device to establish that the device is "substantially equivalent" to medical
devices legally marketed in the United States. While the CH 2000 System
currently marketed by the Company, including the Company's T-wave alternans
technology, has received 510(k) clearance from the FDA for sale in the United
States, the 510(k) clearance does not allow the Company to make claims
regarding the effectiveness of this technology in identifying patients at risk
of sudden cardiac death. The Company is currently conducting further clinical
studies and intends to submit a 510(k) application to support such claims. The
Company has also filed a 510(k) pre-market notification for its Hi-Res
electrodes which are required for the effective implementation of the CH 2000
System. For these and any future products, including any product based on the
Company's CEI technology, there can be no assurance that the FDA will concur
with the Company's 510(k) request for clearance, or that the FDA will not
require the Company to file PMA applications. The process of obtaining a PMA
can be more expensive, uncertain and lengthy than the process of obtaining
510(k) clearance, and frequently requires anywhere from one to several years
from the date of submission, if approval is obtained at all. The failure to
obtain 510(k) clearance for additional labeling claims for the CH 2000 System
or for the Hi-Res electrodes would have a material adverse effect on the
business, financial condition and results of operations of the Company.
Even if regulatory clearance to market a device is obtained from the FDA,
this clearance may limit the indicated uses of the device. Marketing clearance
can also be withdrawn by the FDA due to failure to comply with regulatory
standards or the occurrence of unforeseen problems following initial clearance.
The Company may be required to make further filings with the FDA under certain
circumstances such as the addition of new product claims. The FDA could also
limit or prevent the manufacture or distribution of the Company's products and
has the power to require the recall of such products. Significant delay or cost
in obtaining, or failure to obtain FDA clearance to market products, any FDA
limitations on the use of the Company's products, or any withdrawal of
clearance by the FDA could have a material adverse effect on the business,
financial condition and results of operations of the Company.
In addition, all products manufactured by the Company must be manufactured in
compliance with the standards established by the FDA's Good Manufacturing
Practices ("GMP") regulations. Ongoing compliance with GMP and other applicable
regulatory requirements is monitored through periodic inspection by state and
federal agencies, including the FDA. The FDA may inspect the Company and its
facilities from time to time to determine whether the Company is in compliance
with regulations relating to medical device manufacturing companies, including
regulations concerning manufacturing, testing, quality control and product
labeling practices.
FDA regulations depend heavily on administrative interpretation, and there
can be no assurance that future interpretations made by the FDA or other
regulatory bodies, with possible retroactive effect, will not adversely affect
the Company. In addition, changes in the existing regulations or adoption of
new governmental regulations or policies could prevent or delay regulatory
approval of the Company's products.
Failure to comply with applicable regulatory requirements could result in,
among other things, warning letters, fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of production,
refusal of the government to grant pre-market clearance or pre-market approval
for devices, withdrawal of approvals and criminal prosecution.
A significant portion of the Company's revenue will be dependent upon sales
of its products outside the United States. Foreign regulatory bodies have
established varying regulations governing product standards, packaging
requirements, labeling requirements, import restrictions, tariff regulations,
duties and tax requirements. Specifically, the European Union ("EU") has
promulgated
8
<PAGE>
rules which require that medical products receive the right to affix the CE
mark, an international symbol of adherence to quality assurance standards and
compliance with applicable European medical device directives. Although the
Company has obtained CE mark approval for its first product, the CH 2000
System, there is no assurance that the Company will be able to obtain CE
approval for its future products. Application has been made for approval with
the Ministry of Health in Japan, however, there can be no assurance that such
approval will be granted. The inability or failure of the Company or its
international distributors to comply with varying foreign regulations or the
imposition of new regulations could restrict or, in certain countries, result
in the prohibition of the sale of the Company's products internationally and
thereby adversely affect the Company's business, financial condition and
results of operations. See "Business--Government Regulation".
RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION
The medical device market is characterized by intensive development efforts
and rapidly advancing technology. The future success of the Company will
depend, in large part, upon its ability to anticipate and keep pace with
advancing technology and competitive innovations. However, there can be no
assurance that the Company will be successful in identifying, developing and
marketing new products or enhancing its existing products. In addition, there
can be no assurance that new products or alternative diagnostic techniques
will not be developed that will render the Company's current or planned
products obsolete or inferior. Rapid technological development by competitors
may result in the Company's products becoming obsolete before the Company
recovers a significant portion of the research, development and
commercialization expenses incurred with respect to such products.
Competition from medical devices which help to diagnose cardiac disease is
intense and likely to increase. The Company competes with manufacturers of ECG
stress tests, the conventional method of diagnosing ischemic heart disease,
and may compete with manufacturers of other non-invasive tests, including
ECGs, Holter monitors, ultrasound tests and systems for measuring cardiac late
potentials. Many of the Company's competitors and potential competitors have
substantially greater capital resources, name recognition, research and
development experience and regulatory, manufacturing and marketing
capabilities. Many of these competitors offer well established, broad product
lines and ancillary services not offered by the Company. Some of the Company's
competitors have long-term or preferential supply arrangements with physicians
and hospitals which may act as a barrier to market entry. In addition, other
large health care companies may enter the non-invasive cardiac diagnosis
product market in the future. Competing companies may succeed in developing
products that are more efficacious or less costly than any that may be
developed by the Company, and such companies also may be more successful than
the Company in producing and marketing such products or their existing
products. Competing companies may also introduce competitive pricing pressures
that may adversely affect the Company's sales levels and margins. There can be
no assurance that the Company will be able to compete successfully with
existing or new competitors. See "Business--Competition".
UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT
The Company could be adversely affected by changes in reimbursement policies
of governmental or private health care payors, particularly to the extent any
such changes affect reimbursement for procedures in which the Company's
products are used. Failure by physicians, hospitals and other users of the
Company's products to obtain sufficient reimbursement from health-care payors
for procedures in which the Company's products are used or adverse changes in
governmental and private third-party payors' policies toward reimbursement for
such procedures would have a material adverse effect on the Company's
business, financial condition and results of operations.
If the Company obtains the necessary foreign regulatory approvals, market
acceptance of the Company's products in international markets would be
dependent, in part, upon the availability of
9
<PAGE>
reimbursement within prevailing health-care payment systems. Reimbursement and
health-care payment systems in international markets vary significantly by
country, and include both government sponsored health care and private
insurance. The Company intends to seek international reimbursement approvals,
although there can be no assurance that any such approvals will be obtained in
a timely manner, if at all, and failure to receive international reimbursement
approvals could have an adverse effect on market acceptance of the Company's
products in the international markets in which such approvals are sought. See
"Business--Reimbursement".
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The computer algorithms that allow the CH 2000 System to measure T-wave
alternans and certain aspects of the Company's CEI technology, including its
CEI electrodes, are covered by U.S. patents issued to MIT that are licensed
exclusively to the Company. The Company has applied for a U.S. patent covering
the use of exercise or physiological stress in the measurement of T-wave
alternans, which has been allowed, and corresponding foreign patents are
pending. The Company has also applied for U.S. and foreign patents covering
additional proprietary signal processing algorithms and its Hi-Res electrodes
for use in the measurement of T-wave alternans. The Company owns or is the
exclusive licensee of seven patents issued or allowed and six patents pending
in the United States, with 17 corresponding foreign patents issued or pending
with respect to its technololgy. The MIT License Agreement and the Cohen
License Agreement impose various commercialization, sublicensing, insurance,
royalty, product liability indemnification and other obligations on the
Company. See "-- Dependence Upon Licenses".
The Company's future success will depend, in part, on its ability to
continue to develop patentable products, enforce its patents and obtain patent
protection for its products both in the United States and in other countries.
However, the patent positions of medical device companies, including the
Company, are generally uncertain and involve complex legal and factual
questions. No assurance can be given that patents will issue from any patent
applications owned by or licensed to the Company or that, if patents do issue,
the claims allowed will be sufficiently broad to protect the Company's
technology. In addition, no assurance can be given that any issued patents
owned by or licensed to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. Litigation, which is
likely to result in substantial expense to the Company, may be necessary to
enforce any patents issued or licensed to the Company and/or to determine the
scope and validity of others' proprietary rights. The Company may also have to
participate in interference proceedings declared by the United States Patent
and Trademark Office, which could result in substantial expense to the
Company, to determine the priority of inventions. Furthermore, the Company may
have to participate at substantial cost in International Trade Commission
proceedings to abate importation of products which would compete unfairly with
products of the Company.
The Company relies on unpatented trade secrets to protect its proprietary
technology, and no assurance can be given that others will not independently
develop or otherwise acquire substantially equivalent techniques or otherwise
gain access to the Company's proprietary technology or disclose such
technology or that the Company can ultimately protect its rights to such
unpatented proprietary technology. The Company also relies on confidentiality
agreements with its collaborators, employees, advisors, vendors and
consultants to protect its proprietary technology. There can be no assurance
that these agreements will not be breached, that the Company would have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. Failure
to obtain or maintain patent and trade secret protection, for any reason,
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Patents, Trade Secrets and
Proprietary Rights".
10
<PAGE>
LIMITED MANUFACTURING AND MARKETING EXPERIENCE
For the Company to commercialize its products successfully, it must
manufacture or assemble these products, either by itself or through third
parties, in commercial quantities, at high quality levels and at commercially
reasonable costs. Such manufacturing or assembly must be accomplished in
accordance with GMP and, by 1998, ISO 9001 and other applicable regulatory
requirements. There can be no assurance that the Company's reliance on others
for the manufacture of its components, including the Hi-Res electrodes, will
not result in problems with product supply. Interruptions in the availability
of components could delay or prevent the development and commercial marketing
of the CH 2000 System.
The Company intends to market its products in the United States primarily
through its own direct sales force and, to a lesser extent, distributors.
Significant expenditures, management resources and time will be required for
the Company to develop a successful domestic direct sales force. There can be
no assurance that the Company will be able to recruit and retain skilled sales
management, direct salespersons or distributors, or that the Company's sales
efforts will be successful. See "Business--Sales and Marketing". The Company
intends to market its products internationally through independent
distributors. These distributors may also distribute competing products under
certain circumstances. The loss of a significant international distributor
could have a material adverse effect on the Company's business if a new
distributor, sales representative or other suitable sales organization cannot
be found on a timely basis in the relevant geographic market. To the extent
that the Company relies on sales in certain territories through distributors,
any revenues the Company receives in those territories will depend upon the
efforts of its distributors. Furthermore, there can be no assurance that a
distributor will market the Company's products successfully or that the terms
of its distribution arrangements will be acceptable to the Company. See
"Business--Sales and Marketing".
DEPENDENCE UPON KEY SUPPLIERS
Although the Company believes that there are a number of qualified vendors
for most of the components and subassemblies required for its products,
certain components are currently single sourced. Moreover, substitute
components may not be immediately available in quantities needed by the
Company. Delays associated with any future component shortages, particularly
as the Company scales up its manufacturing activities in support of commercial
sales, could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company is actively seeking
alternative sources but the Company's inability to obtain alternative
suppliers or a sufficient quantity of such components on favorable terms could
materially adversely affect the Company's business, financial condition and
results of operations. See "Business--Manufacturing".
ATTRACTION AND RETENTION OF KEY MANAGEMENT PERSONNEL AND CONSULTANTS
The Company is highly dependent on its senior management, marketing and
technical personnel, the loss of whose services could have a material adverse
effect on the Company. Recruiting and retaining such personnel in the future
will be critical to the Company's success. There can be no assurance that the
Company will be able to attract and retain qualified personnel on acceptable
terms given the competition for such qualified personnel.
The Company is party to a consulting agreement with Dr. Cohen, pursuant to
which Dr. Cohen has agreed to provide one day a week of consulting services to
the Company through February 1998 regarding development and commercialization
of the Company's core technologies which have been licensed from MIT. During
the term of the consulting agreement, and for a period of up to two additional
years following its termination or expiration, Dr. Cohen is obligated not to
compete with the Company provided the Company makes continuing payments to Dr.
Cohen during such two year period. In the event that Dr. Cohen ceases to
provide consulting services or to maintain a relationship with the Company,
whether by reason of expiration of the consulting agreement, a breach by the
Company of
11
<PAGE>
the agreement's terms, or any dispute between the Company and Dr. Cohen, such
cessation would have a material adverse impact upon the Company in view of Dr.
Cohen's reputation with important clinical constituencies, and his expertise
concerning the Company's technologies.
In addition, the Company depends on other third party consultants,
collaborators and contractors in connection with its product development,
testing and manufacturing activities. The discontinuation of the Company's
collaborative relationship with any of its consultants, collaborators or
contractors, or the Company's failure to establish relationships in the future
with highly qualified collaborators, consultants or contractors, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company has entered into employment agreements with Jeffrey M. Arnold,
the Company's President and Chief Executive Officer, and Dr. Paul Albrecht,
Vice President of Engineering. See "Management--Employment Agreements". In
addition, the Company maintains life insurance policies for its benefit on the
lives of Dr. Cohen and Mr. Arnold in the amounts of $2.0 million and $1.0
million, respectively.
INTERNATIONAL SALES AND OPERATIONS RISKS
The Company plans to sell the CH 2000 System and any future products on a
worldwide basis. A number of risks are inherent in international transactions.
International sales and operations may be limited or disrupted by the
imposition of government controls, export license requirements, political
instability, trade restrictions, changes in tariffs or difficulties in
staffing and managing international operations. In addition, laws in foreign
countries may not always provide protection for the Company's proprietary
rights in its technologies. Foreign regulatory agencies often establish
product standards different from those in the United States and any inability
to obtain foreign regulatory approvals on a timely basis could have an adverse
effect on the Company's international business and its financial condition and
results of operations. Additionally, the Company's business, financial
condition and results of operations may be adversely affected by fluctuations
in currency exchange rates as well as increases in duty rates and difficulties
in obtaining export licenses. There can be no assurance that the Company will
be able to successfully commercialize the CH 2000 System or any future product
in any foreign market. See "Business--Marketing and Sales".
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company believes that its existing capital resources, together with the
proceeds of this Offering and interest earned thereon, will be adequate to
satisfy its capital requirements for at least the next two years. The
Company's future capital requirements will depend, however, on many factors,
including sales of its existing product, the continued progress in, and
magnitude of, its research and product development programs, the timing and
costs involved in obtaining regulatory approvals, the costs involved in
filing, prosecuting, enforcing and defending patent claims, competing
technological and market developments and the costs and success of
commercialization activities, and there can be no assurance that the Company
may not in the future require additional funding. If the Company requires
additional funding, there can be no assurance that it will be able to obtain
such funding on acceptable terms, if at all.
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE
The manufacture and sale of medical devices entails significant risk of
product liability claims in the event that the use of such devices is alleged
to have resulted in adverse effects to a patient. The Company has taken and
will continue to take what it believes are appropriate precautions, including
maintaining general liability and commercial liability insurance policies
which include coverage for product liability claims. The limit under these
policies totals $2.0 million. However, there can be no
12
<PAGE>
assurance that the Company's existing insurance coverage limits are adequate
to protect the Company from any liabilities it might incur in connection with
the sale of its products. In addition, the Company may require increased
product liability coverage. Such insurance is expensive and in the future may
not be available on acceptable terms, if at all. A successful product
liability claim or series of claims brought against the Company in excess of
its insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, it is
possible that adverse product liability actions could negatively affect the
Company's ability to obtain and maintain regulatory approval for its products.
NO PUBLIC MARKET; POSSIBLE VOLATILITY OF SHARE PRICE
Prior to this Offering, there has been no public market for the Common Stock
of the Company, and there can be no assurance that an active trading market
will develop or be sustained after this Offering. The initial public offering
price will be determined by negotiations among the Company and the
representatives of the Underwriters based upon several factors and may not be
indicative of future market prices. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
market price of the Company's Common Stock could be subject to wide
fluctuations in response to quarterly variations in the Company's operating
results, announcements of technological innovations or new commercial products
by the Company or its competitors, governmental regulation, developments in
patent or other proprietary rights and public concern regarding the safety,
effectiveness or other implications of the products being developed by the
Company. In addition, the stock market has experienced extreme price and
volume fluctuations. This volatility has significantly affected the market
prices of securities of many medical device companies for reasons frequently
unrelated to or disproportionate to the operating performance of the specific
companies. These broad market fluctuations may adversely affect the market
price of the Company's Common Stock.
CONTROL BY DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS
Upon completion of this Offering, the Company's directors, executive
officers and principal stockholders, together with their affiliates, will
beneficially own approximately 47% of the Company's outstanding Common Stock
(approximately 45% if the Underwriters exercise their over-allotment option in
full). As a result, these stockholders, if acting together, will have the
ability to influence the outcome of corporate actions requiring stockholder
approval, including the election of directors and the approval of certain
mergers and other significant corporate transactions, such as a sale of
substantially all of the Company's assets, irrespective of how other
stockholders of the Company may vote. This concentration of ownership may have
the effect of delaying or preventing a change in control of the Company. See
"Management" and "Principal Stockholders".
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
this Offering could have a material adverse effect on the market price of the
Common Stock. The 3,000,000 shares of Common Stock offered by the Company (and
any shares sold pursuant to the exercise of the Underwriters' over-allotment
option) will be freely tradable without restriction. An additional 225,028
shares of Common Stock, which are not subject to lock-up agreements with the
Underwriters, will be eligible for sale in the public market upon the date of
this Prospectus in reliance on Rule 144(k) under the Securities Act of 1933 as
amended (the "Securities Act"). An additional 1,832,864 shares of Common
Stock, which are not subject to lock-up agreements with the Underwriters, will
be eligible for sale in the public market on October 25, 1996, in reliance on
Rule 144(k) under the Securities Act. Beginning approximately 90 days after
the date of this Prospectus, approximately 4,930,147 additional
13
<PAGE>
shares of Common Stock (including approximately 542,960 shares of Common Stock
issuable upon exercise of vested stock options) will become eligible for sale
in the public market pursuant to Rules 144 and 701. Additionally, stockholders
of the Company owning an aggregate of approximately 5,675,205 shares of Common
Stock, have the right to demand registration under the Securities Act of their
shares of Common Stock and have the right to have their shares of Common Stock
included in future registered public offerings of securities by the Company.
The Company cannot predict the effect, if any, that market sales of shares or
the availability of shares for sale will have on the market price of the
Common Stock prevailing from time to time. Sales of significant amounts of the
Common Stock of the Company in the public market could adversely affect the
market price of the Company's Common Stock and could impair the Company's
ability to raise capital through an offering of its equity securities. See
"Description of Capital Stock--Common Stock", "Shares Eligible for Future
Sale" and "Underwriting".
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation as in effect upon the
closing of this Offering will require that any action required or permitted to
be taken by stockholders of the Company must be effected at a duly called
annual or special meeting of stockholders and may not be effected by any
consent in writing, and will require reasonable advance notice by a
stockholder of a proposal or director nomination which such stockholder
desires to present at any annual or special meeting of stockholders. Special
meetings of stockholders may be called only by the President of the Company or
by the Board of Directors. The Restated Certificate of Incorporation provides
for a classified Board of Directors, and members of the Board of Directors may
be removed only for cause upon the affirmative vote of holders of at least
two-thirds of the shares of capital stock of the Company entitled to vote. In
addition, the Board of Directors will have the authority, without further
action by the stockholders, to fix the rights and preferences of, and issue
shares of, Preferred Stock. These provisions and other provisions of the
Restated Certificate of Incorporation, may have the effect of deterring
unsolicited acquisition proposals or hostile takeovers or delaying or
preventing changes in control or management of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over the then current market prices. In addition, these provisions may
limit the ability of stockholders to approve transactions that they may deem
to be in their best interests. See "Description of Capital Stock--Preferred
Stock" and "--Delaware Law and Certain Charter and By-Law Provisions".
SIGNIFICANT FLEXIBILITY IN APPLYING NET PROCEEDS OF OFFERING
Currently, the Company has no specific plans for the net proceeds of this
Offering, other than to fund research and development activities, clinical
studies, capital equipment for manufacturing scale-up, sales and marketing,
and for working capital and general corporate purposes. In addition to
obtaining equity capital, the purpose of this Offering is to create a public
market for the Common Stock and to facilitate future access to public markets.
A portion of the net proceeds may also be used for the acquisition of products
and technologies that are complementary to those of the Company. Accordingly,
management will have significant flexibility in applying the net proceeds of
this Offering. See "Use of Proceeds".
ABSENCE OF DIVIDENDS
The Company has not paid any dividends on the Common Stock since its
inception and does not anticipate paying any dividends in the future.
Declaration of dividends on the Common Stock will depend upon, among other
things, future earnings, if any, the operating and financial condition of the
Company, its capital requirements and general business conditions. See
"Dividend Policy".
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby are estimated to be $32.9 million ($37.9 million
if the Underwriters exercise their over-allotment option in full), assuming an
initial public offering price of $12.00 per share and after deducting the
underwriting discount and estimated offering expenses payable by the Company.
The Company intends to use the net proceeds of this Offering to fund
research and development, clinical studies, the acquisition of capital
equipment for manufacturing scale-up, sales and marketing activities and for
working capital and general corporate purposes. A portion of the net proceeds
may also be used for the acquisition of products and technologies that are
complementary to those of the Company.
The amount and timing of expenditures may vary significantly depending upon
numerous factors, including the success of the Company's currently marketed
product, the continued progress in, and magnitude of the Company's research
and product development programs, market acceptance of the Company's products,
the timing and costs involved in obtaining regulatory clearances and
approvals, the costs involved in filing, prosecuting, enforcing and defending
patent claims, and competing technological and market developments and the
costs and success of its commercialization activities. Based upon its current
operating plan, the Company believes that its existing capital resources,
together with the proceeds of this Offering and interest earned thereon, will
be adequate to satisfy its capital requirements for at least the next two
years.
Pending application of the proceeds of this Offering as described above, the
Company intends to invest the net proceeds of this Offering in short-term,
investment-grade, interest-bearing instruments. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain future earnings, if any, for
use in its business and therefore does not anticipate paying cash dividends in
the foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account
various factors, including the Company's financial condition, operating
results, current and anticipated cash needs and plans for expansion. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".
15
<PAGE>
CAPITALIZATION AND CASH POSITION
The following table sets forth as of March 31, 1996 (i) the actual
capitalization and cash position of the Company, after giving effect to 1-for-
2 reverse split of the Common Stock to be effective prior to the closing of
this Offering, (ii) the pro forma capitalization and cash position of the
Company giving effect to the conversion of all outstanding shares of Preferred
Stock into Common Stock at the closing of this Offering, and (iii) the pro
forma capitalization and cash position of the Company as adjusted to reflect
the issuance and sale of 3,000,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $12.00 per share and the application
of the net proceeds therefrom, after deducting the underwriting discount and
estimated offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents $ 3,027 $ 3,027 $35,882
======= ======= =======
Stockholders' equity:
Series B convertible preferred stock, $0.001
par value; 2,500,000 shares authorized;
2,333,333 issued and outstanding (liquidating
preference of $3,500,000) actual; none issued
and outstanding pro forma and pro forma as
adjusted..................................... $ 2 $ -- $ --
Series A convertible preferred stock, $0.001
par value; 6,900,000 shares authorized;
6,578,083 shares issued and outstanding
(liquidating preference of $6,578,083)
actual; none issued and outstanding pro forma
and pro forma as adjusted.................... 7 -- --
Preferred stock, $0.001 par value; 2,000,000
shares authorized; no shares issued and
outstanding.................................. -- -- --
Common stock, $0.001 par value; 25,000,000
shares authorized; 3,208,163 shares issued
and outstanding actual; 7,663,871 pro forma;
10,663,871 pro forma as adjusted(1).......... 3 8 11
Additional paid-in capital.................... 9,517 9,521 42,373
Deficit accumulated during the development
stage........................................ (5,747) (5,747) (5,747)
Deferred compensation......................... (429) (429) (429)
------- ------- -------
Total stockholders' equity.................. $ 3,353 $ 3,353 $36,208
======= ======= =======
</TABLE>
- --------
(1) The foregoing assumes no exercise of outstanding options or warrants. As
of March 31, 1996, there were outstanding options to purchase 1,319,499
shares of Common Stock under the Company's 1993 Incentive and Non-
Qualified Stock Option Plan (the "1993 Plan") at a weighted average
exercise price of $0.54 per share, and warrants to purchase 438,538 shares
of Common Stock at an exercise price of $2.00 per share. As of the closing
of this Offering, an additional 1,200,000 shares will be reserved for
future issuance under the Company's stock plans. See "Management--Employee
Benefit Plans" and Notes 5 and 6 to the Company's financial statements.
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996
was approximately $3,353,000, or $0.44 per share, after giving effect to the
conversion of all outstanding shares of Preferred Stock into an aggregate of
4,455,708 shares of Common Stock upon completion of this Offering. Pro forma
net tangible book value per share represents the amount of total tangible
assets of the Company reduced by the Company's total liabilities, divided by
the number of shares of Common Stock outstanding. Assuming an offering price
of $12.00 per share and after giving effect to the sale by the Company of
3,000,000 shares of Common Stock in this Offering (after deducting the
estimated underwriting discount and offering expenses), the pro forma net
tangible book value of the Company as of March 31, 1996 would have been
approximately $36,208,000 or $3.40 per share. This represents an immediate
increase in pro forma net tangible book value of $2.96 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$8.60 per share to new investors purchasing Common Stock in this Offering. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $12.00
Pro forma net tangible book value per share as of March 31,
1996....................................................... $0.44
Increase per share attributable to new investors............ 2.96
-----
Pro forma net tangible book value per share after this
Offering..................................................... 3.40
------
Dilution per share to new investors........................... $ 8.60
======
</TABLE>
The following table summarizes, on the pro forma basis described above, as
of March 31, 1996, the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company, and the average price
paid per share by the existing stockholders and by investors purchasing shares
of Common Stock offered hereby (at an assumed initial public offering price of
$12.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 7,663,871 71.9% $10,095,898 21.9% $ 1.32
New investors........... 3,000,000 28.1 36,000,000 78.1 12.00
---------- ----- ----------- -----
Total................. 10,663,871 100.0% $46,095,898 100.0%
========== ===== =========== =====
</TABLE>
The above computation assumes no exercise of outstanding options and
warrants since March 31, 1996. As of March 31, 1996, there were options and
warrants outstanding to purchase an aggregate of 1,758,037 shares of Common
Stock at a weighted average exercise price of $0.90 per share. The exercise of
such options and warrants will result in further dilution to new investors. As
of the closing of this Offering, an additional 1,200,000 shares of Common
Stock will be reserved for future issuance under the Company's stock plans.
See "Capitalization", "Management--Compensation of Directors", "--Employee
Benefit Plans", and "Description of Capital Stock".
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the three years ended
December 31, 1995 and for the period from inception (January 16, 1990) through
December 31, 1995, and as of December 31, 1994 and 1995, are derived from the
financial statements of the Company that have been audited by Price Waterhouse
LLP, independent accountants, which are included elsewhere in this Prospectus.
The selected financial data set forth below as of December 31, 1993 are
derived from audited financial statements not included in this Prospectus. The
unaudited statement of operations data for the three months ended March 31,
1995 and 1996 and for the period from inception (January 16, 1990) through
March 31, 1996 and the unaudited balance sheet at March 31, 1996 have been
derived from unaudited financial statements also appearing herein which, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the financial
position and results of operations for the unaudited interim periods. The
operating results for the three months ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the full fiscal
year ending December 31, 1996 or for any subsequent period. The data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's financial
statements, related notes thereto and other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(JANUARY 16, THREE MONTHS (JANUARY 16,
YEAR ENDED DECEMBER 31, 1990) THROUGH ENDED MARCH 31, 1990) THROUGH
---------------------------- DECEMBER 31, ----------------- MARCH 31,
1993(1) 1994 1995 1995 1995 1996 1996
------- ------- ---------- ------------- ----- ---------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Product revenue......... $ -- $ -- $ 68 $ 68 $ -- $ 55 $ 123
Revenue from research
and option agreement... -- 25 -- 25 -- -- 25
------ ------- ---------- ------- ----- ---------- -------
Total revenue......... $ -- $ 25 $ 68 $ 93 $ -- $ 55 $ 148
Cost of goods sold...... -- -- 141 141 -- 49 190
------ ------- ---------- ------- ----- ---------- -------
Gross profit (loss)..... $ -- $ 25 $ (73) $ (48) $ -- $ 6 $ (42)
Costs and expenses:
Research and
development.......... $ 589 $ 1,124 $ $ 1,560 $ 3,286 $ 414 $ 353 $ 3,639
Selling, general and
administrative....... 321 724 1,110 2,184 191 366 2,550
------ ------- ---------- ------- ----- ---------- -------
Total costs and
expenses........... $ 910 $ 1,848 $ 2,670 $ 5,470 $ 605 $ 719 $ 6,189
------ ------- ---------- ------- ----- ---------- -------
Loss from operations.... $ (910) $(1,823) $ (2,743) $(5,518) $(605) $ (713) $(6,231)
Interest income, net.... 27 164 246 437 44 47 484
------ ------- ---------- ------- ----- ---------- -------
Net loss.............. $ (883) $(1,659) $ (2,497) $(5,081) $(561) $ (666) $(5,747)
====== ======= ========== ======= ===== ========== =======
Pro forma net loss per
share.................. $ (0.33) $ (0.08)
========== ==========
Pro forma weighted
average common and
common equivalent
shares outstanding(2).. 7,564,108 7,938,872
========== ==========
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1993(1) 1994 1995 1996
------- ------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $5,029 $ 3,329 $ 3,948 $ 3,027
Working capital......... 4,865 3,081 3,849 3,149
Total assets............ 5,060 3,421 4,277 3,536
Total liabilities....... 166 266 266 182
Accumulated deficit..... (925) (2,584) (5,081) (5,747)
Stockholders' equity.... 4,813 3,155 4,011 3,353
</TABLE>
- -------
(1) The Company's operations during the period from inception (January 16,
1990) through December 31, 1992 were minimal, consisting primarily of
business establishment and planning. During the period from inception
(January 16, 1990) through December 31, 1991, the Company's only activity
consisted of incorporation and the sale of 50 shares of its Common Stock
for an aggregate of $1. No expenses were recorded during this period.
During the year ended December 31, 1992, the Company's activities were
comprised of initial start up expenses totalling $41,888 (current
liabilities related to these expenses totaled $37,310 at December 31,
1992) and the issuance of additional Common Stock for cash proceeds of
$5,599. Due to the immaterial nature of these activities, the statement of
operations data for the years ended December 31, 1991 and 1992, and
balance sheet data as of December 31, 1991 and 1992 have been omitted from
the table above. See the Company's financial statements and related notes
thereto included elsewhere in this Prospectus.
(2) For the year ended December 31, 1995 and the three months ended March 31,
1996, pro forma weighted average common and common equivalent shares
outstanding consist of 7,233,875 and 7,619,861 shares of Common Stock,
respectively, after giving effect to the reverse stock split and the
conversion of preferred stock upon the completion of the Offering and
including 330,233 and 319,011 shares, respectively, attributable to
options granted in the twelve month period prior to the Offering using the
if-converted method.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Cambridge Heart is engaged in the research, development and
commercialization of products for the non-invasive diagnosis of cardiac
disease. The Company has generated limited revenues from the shipment of
demonstration units of its first product and has experienced substantial net
losses since its inception, and expects to incur substantial and increasing
net losses for the foreseeable future. The Company believes that its research
and development expenses will increase significantly in the future as it
develops additional products and funds clinical trials of its products. The
Company's research and development expenses may also increase in the future as
it supplements its internal research and development with third party
technology licenses and potential product acquisitions. The Company also
expects that its selling, general and administrative expenses will continue to
increase in connection with the Company's continued expansion of its sales and
marketing activities. Revenues generated from the sale of the Company's
products will depend upon numerous factors, including the timing of regulatory
actions, progress of product development, the extent to which the Company's
products gain market acceptance, varying pricing promotions and volume
discounts to customers, competition and the availability of third party
reimbursement. The Company has incurred cumulative net losses since inception
through March 31, 1996 of approximately $5,747,000. See "Risk Factors--
Development Stage Company; History of Operating Losses".
RESULTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 1995 AND 1996
The Company had no product revenue in the quarter ended March 31, 1995 and
product revenue of $55,000 in the quarter ended March 31, 1996. This revenue
resulted from the shipment of demonstration units of the CH 2000 System in the
United States.
Cost of goods sold was $49,000 for the quarter ended March 31, 1996,
representing 89% of product sales. These expenses reflect a number of fixed
costs that were incurred as the Company expanded manufacturing operations in
anticipation of commercializing its products.
The Company's research and development expenses were $414,000 in the quarter
ended March 31, 1995 and $353,000 in the quarter ended March 31, 1996. The
expenses for 1995 included prototype CH 2000 Systems for clinical sites.
The Company's selling, general and administrative expenses increased from
$191,000 in the quarter ended March 31, 1995 to $366,000 in the quarter ended
March 31, 1996. The increase was primarily attributable to the development of
the Company's administrative infrastructure.
Interest income was $44,000 in the quarter ended March 31, 1995, compared to
$47,000 in the quarter ended March 31, 1996.
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
The Company recorded its first product revenue of $68,000 in 1995. This
revenue resulted from the shipment of demonstration units of the CH 2000
System to Fukuda Denshi, the Company's distributor in Japan. In 1994, the
Company recognized revenue of $25,000 in connection with a research and option
agreement with a third party. See "Business--Research and Development".
Cost of goods sold was $141,000 in 1995, representing 208% of product sales
in 1995. These expenses reflect a number of fixed costs that were incurred as
the Company expanded manufacturing operations in anticipation of
commercializing its products.
19
<PAGE>
The Company's research and development expenses were $589,000 in 1993,
$1,124,000 in 1994 and $1,560,000 in 1995. Research and development expenses
have primarily related to product development expenses for the CH 2000 System
which the Company first introduced in the third quarter of 1995. In 1995, the
Company's research and development expenses also included expenses relating to
the development of its proprietary Hi-Res electrodes. The increase in research
and development expenses in 1995 from 1994 was attributable primarily to
increases in personnel and clinical studies support.
The Company's selling, general and administrative expenses increased from
$321,000 in 1993, to $724,000 in 1994 and $1,110,000 in 1995. The increases in
1994 and 1995 were primarily attributable to the development of the Company's
administrative infrastructure.
Interest income was $33,000 in 1993, $164,000 in 1994 and $246,000 in 1995.
The changes in interest income from year to year reflect fluctuations in
interest rates in each of these years as well as an increased cash balance
resulting from the sale of convertible preferred stock in 1993 and 1995. See
"--Liquidity and Capital Resources".
Inflation did not have a significant effect on the Company's results of
operations for any of the three years in the period ended December 31, 1995.
The Company recorded no provision for income taxes for 1993, 1994 and 1995
because it incurred net losses in each of such years. At December 31, 1995,
the Company had net operating loss carryforwards of $4,871,000 as well as
$237,000 of tax credit carryforwards available to offset future taxable income
and income tax liabilities, respectively. These carryforwards generally expire
in the years 2007 through 2010 and may be subject to annual limitations as a
result of changes in the Company's ownership. There can be no assurance that
changes in ownership in future periods or continuing losses will not
significantly limit the Company's use of net operating loss and tax credit
carryforwards.
The Company has generated taxable losses from operations since inception
and, accordingly, has no taxable income available to offset the carryback of
net operating losses. In addition, although management's operating plans
anticipate taxable income in future periods, such plans provide for taxable
losses over the near term and make significant assumptions which cannot be
reasonably assured including approval of the Company's products by the FDA and
market acceptance of these products by customers. Based upon the weight of all
available evidence, the Company has provided a full valuation allowance
($2,200,000 at December 31, 1995) for its deferred tax assets since, in the
opinion of management, realization of these future benefits is not
sufficiently assured (defined as a likelihood of slightly more than 50
percent).
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed operations primarily from the sale
of convertible preferred stock. As of March 31, 1996, the Company had raised
$9,065,000 (net of stock issuance costs) from the sales of equity securities,
with net proceeds of $5,697,000 received in 1993 and $3,353,000 received in
1995.
As of March 31, 1996, the Company had cash and cash equivalents of
$3,027,000. The proceeds of the equity offerings have been used primarily to
fund operating losses of $5,747,000, reflecting expenditures made primarily to
support research and development activities, to form a marketing and sales
organization, to support an administrative infrastructure, and the investment
of approximately $250,000 in property and equipment as of March 31, 1996. In
1995, the Company used $2,615,000 to fund operating activities.
The Company expects its capital expenditures to increase as it continues to
commercialize its products, particularly in connection with the manufacture of
its proprietary Hi-Res electrodes. The Company does not expect capital
expenditures to exceed an aggregate $3,000,000 over the next two years.
20
<PAGE>
The Company anticipates that its existing capital resources, together with
the proceeds of this Offering and the interest earned thereon, will be
adequate to satisfy its capital requirements for at least the next two years.
There may be circumstances, however, that would accelerate the Company's use
of proceeds from this Offering. If this occurs, the Company, may, from time to
time, incur additional indebtedness or issue, in public or private
transactions, equity or debt securities. However, there can be no assurance
that suitable debt or equity financing will be available to the Company on
acceptable terms, if at all.
RECENTLY ENACTED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation". The Company has elected to adopt this standard in 1996 through
footnote disclosure only.
21
<PAGE>
BUSINESS
Cambridge Heart is engaged in the research, development and
commercialization of products for the non-invasive diagnosis of cardiac
disease. Using innovative technologies, including proprietary disposable
electrodes, the Company is addressing such key problems in cardiac diagnosis
as (i) the identification of those at risk of sudden cardiac death, accounting
for approximately 50% of all deaths due to heart attack, (ii) the early
detection of coronary artery disease and (iii) the prompt and accurate
diagnosis of heart attack. The Company's lead product, the CH 2000 System, is
designed to perform conventional cardiac stress tests as well as to
incorporate the Company's proprietary technology to non-invasively measure
extremely low levels of T-wave alternans, a beat-to-beat alternation in a
portion of the electrocardiogram. Clinical research published to date has
demonstrated that T-wave alternans is associated with vulnerability to
ventricular arrhythmias responsible for sudden cardiac death to a degree
comparable to EP testing, the most accurate invasive test.
HEART DISEASE
Cardiac disease is the leading cause of death in the United States and many
other developed countries. According to the American Heart Association, in
1993 cardiovascular disease accounted for 42% of all deaths in the United
States. Approximately 1.5 million people suffered heart attacks in the United
States in 1993, resulting in 500,000 deaths. Approximately half of these
deaths were sudden, generally the result of ventricular arrhythmias, which
cause the heart to beat in an abnormal and ineffective manner.
ISCHEMIC HEART DISEASE AND ACUTE MYOCARDIAL INFARCTION
Disease Characteristics. Ischemic heart disease, also referred to as
coronary artery disease, is related to the progressive narrowing of the blood
vessels that supply oxygen and nutrients to the heart. When blood flow becomes
inadequate, the patient may experience chest pain (angina), especially under
conditions of stress or exercise. When the build-up of plaque or the presence
of a blood clot further narrows the coronary arteries, an area of the heart
muscle (myocardium) may die, an event called a myocardial infarction, the most
common cause of heart attack.
Disease Incidence. Coronary artery disease is a common form of cardiac
disease, affecting approximately 13.5 million people in the United States. It
is estimated that approximately eight million patients each year present
themselves at emergency rooms in the United States with acute chest pain or
other symptoms typical of acute myocardial infarction. Of these patients,
approximately 2.7 million are admitted to the hospital for evaluation, of whom
about 1 million actually have experienced a myocardial infarction. Despite
this high admission rate, it has been estimated that between 4% and 8% of
those patients experiencing myocardial infarction may be sent home
inappropriately, some of whom die soon thereafter.
Current Therapies. If properly diagnosed, ischemic heart disease is
treatable with coronary artery bypass grafting ("CABG") or coronary
("balloon") angioplasty. These are used to bypass, reopen or widen blocked or
narrowed arteries, or with medication (such as nitrates, beta blockers and
calcium channel blockers), which are used to improve blood flow or regulate
the heart. In 1993, an estimated 485,000 CABG procedures and 398,000
angioplasty procedures were performed in the United States.
Current Diagnostic Procedures. The principal non-invasive diagnostic tools
utilized in the diagnosis of ischemic heart disease are the ECG and the
exercise stress test. Normal heartbeats make a specific pattern of electrical
signals that can be measured by an ECG through electrodes applied to the
patient and recorded graphically on paper or displayed on a video monitor.
Specific types of heart disease usually change the pattern of signals in ways
recognizable to a physician.
22
<PAGE>
Most patients with suspected heart disease undergo an exercise stress test,
during which the patient exercises on a motorized treadmill or bicycle
ergometer with ECG electrodes attached to the patient's chest. Although
standard stress tests are widely used as a screening test for heart disease,
stress tests are not considered to be highly sensitive or accurate in
detecting or localizing coronary artery blockages. For example, these tests
generally have a false negative rate on the order of 34%, and, in the absence
of chest pain, as high as 63%. This lack of accuracy may result in unnecessary
follow-on procedures or in the failure to detect significant heart disease.
The accuracy of stress tests and the ability to locate coronary artery
disease may be enhanced by the use of ultrasound imaging technology (an
"echocardiogram"), or through the use of a low level radioactive tracer
isotope (a "nuclear stress test"). Both of these tests are considered to be
more sensitive in detecting and analyzing coronary artery blockages than a
standard treadmill exercise test, but are also substantially more expensive.
There were approximately six million standard exercise ECG stress tests
performed in the United States in 1995 at a cost of $200 to $350 per
procedure. In addition, there were an estimated 1.5 million echocardiogram
stress tests performed at a cost of $800 to $1,000 per procedure and 1.5
million nuclear stress tests performed at a cost of $1,000 to $1,500 per
procedure.
Patients with a positive stress test or with suspected coronary artery
disease will generally undergo invasive coronary angiography. In this
procedure, a catheter is inserted through an artery in the leg or arm and
guided into the patient's coronary arteries, where the physician can use the
catheter to diagnose the nature and extent of the patient's coronary artery
disease. In 1993, approximately 1.5 million coronary angiographies were
performed in the United States at a cost of approximately $3,000 to $4,000 per
procedure.
VENTRICULAR ARRHYTHMIA AND SUDDEN CARDIAC DEATH
Disease Characteristics. Arrhythmias are abnormalities in the regular
beating pattern of the heart caused by an alteration in the normal pattern of
conduction of electrical signals within the heart. Sudden cardiac arrest is
generally caused by ventricular fibrillation, a disorganized quivering of the
ventricles which interferes with the pumping action of the heart, or by
ventricular tachycardia, a rapid beating of the ventricles which can
degenerate into ventricular fibrillation. Ventricular fibrillation and
ventricular tachycardia most often result from the triggering of an underlying
electrical instability of the heart. This electrical instability may be the
result of congenital factors, may be caused by scar tissue from a previous
myocardial infarction, or may result from coronary artery disease or other
diseases.
Disease Incidence. Each year more than 300,000 individuals in the United
States experience a sudden cardiac arrest episode. Of these, approximately
250,000 individuals die and 50,000 individuals survive, primarily through
emergency defibrillation. Most of those who die suddenly have some pre-
identified condition which puts them at elevated risk. For example, without
treatment, the approximately 50,000 annual survivors of a cardiac arrest
episode have over a 25% chance of dying suddenly in the one year following
cardiac arrest. Of the approximately 1.0 million annual survivors of
myocardial infarction, 13% of men and 6% of women will die suddenly in the
following six years. Patients with enlarged hearts due to hypertrophic
cardiomyopathy (approximately 500,000 patients), patients with congestive
heart failure (approximately 4.7 million patients), patients with known
coronary artery disease (approximately 13.5 million patients) and patients who
have experienced fainting spells are also at elevated risk. Such high risk
subgroups account for approximately 75% of sudden cardiac deaths; for the
other 25% there is no prior indication of cardiac disease.
23
<PAGE>
Current Therapies. When properly diagnosed, those patients at risk of sudden
cardiac death are treatable with an implantable cardioverter defibrillator
("ICD"), with RF ablation of abnormal tissue in the ventricles, which can
improve electrical conduction in the heart, or with anti-arrhythmic
medication. In the United States, most patients are treated with an ICD, an
electronic device similar to a pacemaker that is permanently implanted in the
patient. The ICD is designed to monitor the patient's heartbeat and, in the
event of ventricular fibrillation or ventricular tachycardia, to deliver
electric pulses or shocks to the heart to terminate the arrhythmia. It is
estimated that 21,000 ICDs were implanted in 1995 in the United States.
Current Diagnostic Procedures. Patients believed to be at risk of
ventricular arrhythmia may undergo an invasive EP study. Diagnostic EP studies
involve the deliberate electric stimulation of the heart utilizing specially-
designed catheters. These catheters are inserted into the heart through a
major vein or artery to provoke heart rhythm disturbances which, if they
occur, are then terminated by pacing or defibrillation shocks. Patients in
whom certain types of ventricular arrhythmia can be induced via this procedure
are considered to be at risk of sudden cardiac death.
Although EP studies are generally effective in diagnosing cardiac
arrhythmias, they are invasive and costly procedures. As a result, their use
is generally limited to patients who have demonstrated previous episodes of
ventricular arrhythmia, or have experienced fainting spells believed to be
caused by these arrhythmias. It is estimated that approximately 75,000 EP
studies were performed for the diagnosis of ventricular arrhythmias in 1995 in
the United States at a cost of $3,000 to $4,000 per procedure. This represents
a small fraction of the many millions of persons believed to be at risk but
who are not studied or treated because of the lack of an effective non-
invasive screening test.
The Company believes that, aside from its technology, there is no effective
non-invasive diagnostic test to assess accurately the risk of sudden cardiac
death caused by ventricular arrhythmia. The non-invasive diagnostic tests that
are available generally identify only a small subset of patients who are at
risk of sudden cardiac death or are not sufficiently accurate to warrant
further invasive study or treatment. For example, (i) the identification of
short episodes of non-sustained ventricular tachycardia on a 24-hour Holter
ECG recording, (ii) the presence of late potentials (delayed electrical
activity in the ventricles) on the signal averaged ECG, (iii) reduced beat-to-
beat variability in heart rate, (iv) reduced response in heart rate to blood
pressure changes (baroreceptor sensitivity) and (v) increased variation in the
duration of the QT interval among different electrocardiogram leads in the
same patient, all have been reported to be associated with an increased risk
of sudden cardiac death. However, none of these methods are generally
considered to be sufficiently accurate to warrant further invasive study or
treatment. Finally, ejection fraction, which uses ultrasound or nuclear
imaging to measure the percentage of blood ejected from the heart on each
beat, can indicate a damaged heart which is ineffective in pumping blood. This
is associated with increased rates of sudden cardiac death and with increased
risk of mortality in general; however, because ejection fraction is not
specific in identifying those with high risk of ventricular arrhythmia, it is
not generally considered sufficient to identify those who need to be
invasively studied or treated to prevent sudden death.
NEED FOR IMPROVED DIAGNOSTIC TECHNIQUES
In 1996, developing low-cost, non-invasive technologies to address the
following diagnostic challenges are key problems in cardiac diagnosis:
Sudden Cardiac Death. A study released in April 1996 (the "MADIT Study")
indicates that the prophylactic implantation of ICDs can reduce mortality in
high-risk patients. Although such preventive therapies for sudden cardiac
death have recently become available, non-invasive diagnostic techniques have
not matched these advances. Existing non-invasive diagnostic procedures
generally identify only a small subset of patients who are at risk of sudden
cardiac death or are not sufficiently accurate to warrant further invasive
study or treatment. EP studies are not an attractive alternative
24
<PAGE>
because they are both invasive and expensive. As a result, despite the fact
that there are approximately 250,000 sudden deaths per year, and at least
several times that number of patients are at risk, fewer than 30,000 received
definitive treatment in 1995. This attests to the need for an accurate, non-
invasive, diagnostic procedure to identify patients at risk of sudden cardiac
death.
Accurate and Cost Effective Detection of Coronary Artery Disease. Despite the
fact that approximately six million standard stress tests are performed each
year in the United States at a cost of approximately $1.8 billion, these tests
are generally not considered to be very accurate in detecting or localizing
coronary artery blockages. Other tests, such as echocardiograms and nuclear
stress tests, are somewhat more accurate but are significantly more expensive.
Coronary angiography, like EP studies, is both invasive and expensive. The need
therefore exists for a more accurate and low cost non-invasive method to
identify patients with ischemic heart disease, particularly in the asymptomatic
population.
Accurate and Timely Diagnosis of Acute Myocardial Infarction. With eight
million patients in the United States arriving at hospital emergency rooms each
year complaining of acute chest pain or other symptoms typical of acute
myocardial infarction, the Company believes that a fast and accurate means of
diagnosing acute myocardial infarction is needed. Existing technologies, such
as the 12 lead ECG, can be inaccurate in the diagnosis of impending myocardial
infarction, and diagnosis based on serial enzyme tests can take too long. With
the recognition that the early use of thrombolytics (blood clot dissolving
drugs) in those with acute myocardial infarction can improve a patient's
outcome, a faster and more accurate method of diagnosis has become increasingly
important.
THE CAMBRIDGE HEART SOLUTION
Cambridge Heart has developed an innovative, proprietary non-invasive cardiac
diagnostic system which the Company believes will address shortcomings in
currently available cardiac diagnostic procedures. The Company's initial
product, the CH 2000 System, is designed to perform a broad range of cardiac
stress tests as well as to incorporate the Company's T-wave alternans
technology. Current clinical research into T-wave alternans has demonstrated an
association between T-wave alternans and vulnerability to ventricular
arrhythmia.
The Company's research on its CH 2000 System, using T-wave alternans
technology and Hi-Res electrodes to diagnose ventricular arrhythmias, indicates
that the Company's system has the following potential advantages:
. ACCURACY Clinical studies to date indicate that the detection
of T-wave alternans can identify vulnerability to
ventricular arrhythmias with an accuracy superior to
that of other non-invasive tests and equal to that of
EP studies.
. NON-INVASIVE Unlike EP studies which require the insertion of
electrical catheters into the patient's heart and the
administration of local anesthesia, the CH 2000
System requires only the placement of electrodes on
the patient's chest.
. BROAD APPLICABILITY Six million standard stress tests and three million
imaging stress tests were performed in the United
States in 1995. The CH 2000 System, incorporating the
Company's proprietary T-wave alternans technology, is
designed to simultaneously detect coronary artery
disease and assess the risk of sudden cardiac death
due to ventricular arrhythmias and with only a modest
increase--less than $100--in the total cost of the
procedure.
. NON-HOSPITAL SETTING Unlike EP studies and other tests which require a
hospital setting, the CH 2000 System can be used in a
physician's office.
25
<PAGE>
. PROCEDURE COST ADVANTAGES
The Company anticipates that a stress test with the
CH 2000 System utilizing T-wave alternans technology
will cost approximately $400 per procedure, compared
with approximately $3,000 to $4,000 for an EP study.
. SYSTEM AFFORDABILITY Starting at under $30,000, the CH 2000 System is only
moderately more expensive than standard stress test
systems and only 10% to 30% the cost of certain other
equipment, such as ultrasound or nuclear imaging
equipment.
The Company is also conducting research into the detection of ischemic heart
disease using its cardiac electrical imaging technology. CEI provides an image
of the electrical activity of the heart that is highly sensitive to changes
resulting from ischemia, the lack of oxygen caused by coronary artery disease
or acute myocardial infarction. The Company intends to pursue application of
this technology (i) to provide for enhanced detection and localization of
coronary artery disease during a standard exercise stress test and (ii) to
provide faster and more accurate diagnosis of acute myocardial infarction in
patients who arrive at hospital emergency rooms with acute chest pain.
BUSINESS STRATEGY
The Company's principal objective is to establish the CH 2000 System as the
preferred method for the diagnosis of ventricular arrhythmia. The Company also
intends to develop additional cardiac diagnostic products based upon its
proprietary technology. The Company intends to seek FDA clearance or approval
for promotion of the CH 2000 System for the diagnosis of ventricular
arrhythmias and to implement the following strategies:
. Establish Acceptance of the CH 2000 System By Opinion Leaders. The
Company has enlisted leading medical centers with recognized cardiac care
expertise in the United States and Europe as the initial users of the CH
2000 System, and believes that the successful adoption of its products by
widely recognized cardiology opinion leaders is a critical element in
fostering the market acceptance of its products. The Company intends to
continue to work with leading medical centers and to invest in clinical
studies to establish the efficacy of its products and their
appropriateness for use in the diagnosis of heart disease.
. Expand Usage to Broad Patient Populations. The Company initially intends
to target its T-wave alternans technology for the use by
electrophysiologists on the highest risk patients. The Company will then
work to expand the adoption of this technology by hospital stress test
laboratories and for use on intermediate risk patients such as survivors
of myocardial infarction. Ultimately, the Company intends to market the
CH 2000 System to office cardiologists for general diagnostic and
screening applications.
. Utilize the CH 2000 System to Support Additional Diagnostic
Functions. The Company is conducting research and development of its
proprietary CEI technology for the diagnosis of coronary artery disease
and the detection of acute myocardial infarction. The Company is
evaluating the incorporation of this technology into the CH 2000 System,
as well as for stand-alone use in hospital emergency rooms.
. Establish Disposable Electrodes Business. The effective implementation of
the Company's T-wave alternans and CEI technologies require the use of
proprietary disposable electrodes which the Company believes will provide
a recurring source of revenue as its installed base of CH 2000 Systems
expands. The Company intends to continue to invest in its proprietary Hi-
Res electrodes and other proprietary disposable technologies.
26
<PAGE>
. Establish Strategic Alliances and Distribution Arrangements. In addition
to the Company's existing distribution arrangements with Fukuda Denshi
and Kontron, the Company intends to pursue other strategic relationships,
as appropriate, in order to broaden the acceptance of its products as
quickly as possible and to increase the use of its disposable electrodes.
. Protect and Enhance Proprietary Technology Base. The Company believes
that its intellectual property and technological expertise are important
competitive resources. The Company continues to evaluate markets and
products to exploit its underlying technology. In addition, the Company
maintains a program of intellectual property protection, both to assure
that the proprietary technology developed by the Company is appropriately
protected, and, where necessary, to assure that there is no infringement
of the Company's proprietary technologies by competitive technologies.
PRODUCTS AND APPLICATIONS
The CH 2000 System is designed to perform conventional cardiac stress tests
as well as to incorporate the Company's proprietary T-wave alternans
technology. Current clinical research into T-wave alternans has demonstrated
an association between certain T-wave alternans and vulnerability to
ventricular arrhythmias. The Company's proprietary T-wave alternans technology
permits evaluation, computation and recording of T-wave alternans during
bicycle exercise, atrial pacing or pharmacological stress. Because of the need
to record very small variations in electric signals for precise T-wave
alternans measurement, the CH 2000 System incorporates proprietary Hi-Res
electrodes and proprietary signal processing algorithms to minimize noise
levels resulting from patient movement.
THE CH 2000 SYSTEM
The Company's CH 2000 System is a fully-featured diagnostic system that
includes a cart- mounted computer with proprietary software, integral ECG
system, display, keyboard and output devices which can be configured for both
hospital and office settings. This system is designed to support a broad range
of standard and physician-customized protocols for the conduct and measurement
of cardiac stress tests and is compatible with both standard electrodes and
with the Company's Hi-Res electrodes for T-wave alternans analysis. The CH
2000 System is capable of controlling both treadmill and bicycle ergometers
and is well suited for standard, nuclear or echocardiogram stress tests.
In addition to the incorporation of T-wave alternans technology, the CH 2000
System has been designed to provide a broad range of special features,
including the following:
. A 15-inch high-resolution color monitor for the display of critical data
and parameters, including the display of full 12-lead output, or that of
any specific lead, as required.
. The capacity to generate printed output including 12-lead reports, a
summary of an entire stress test on one page, and alternans levels versus
normal heart rate for an entire study.
. The incorporation of hard disk and optional optical disk storage of data
acquired during the stress test, facilitating both post-test analysis and
post-test annotation of results.
. A modular design using standard computer components for easy maintenance
and upgrade.
Although the Company's strategic focus is on its proprietary T-wave
alternans and CEI technologies, the base CH 2000 System without such
technologies is viewed by Kontron and Fukuda Denshi, the Company's
international distribution partners, as being a highly competitive stress test
system, and the Company expects these distributors to position the system as
their top-end offering in the stress test market.
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<PAGE>
ASSOCIATION OF T-WAVE ALTERNANS AND VENTRICULAR ARRHYTHMIAS
The association between ventricular arrythmia and extremely low levels of T-
wave alternans (not detectable by visual inspection of the ECG) was unknown
until recently. Research conducted in Dr. Richard Cohen's laboratory at MIT
beginning in the early 1980's indicated that analysis of microvolt (millionth
of a volt) levels of T-wave alternans was predictive of vulnerability to
ventricular arrhythmias responsible for sudden cardiac death. Dr. Cohen and
his associates developed the technology to quantify this electrical conduction
pattern which has been exclusively licensed to the Company and which forms the
basis of the Company's proprietary technology.
In a collaborative study of 83 patients conducted at Massachusetts General
Hospital ("MGH") in collaboration with Dr. Cohen's laboratory at MIT, which
was published in the New England Journal of Medicine in December 1994, the
detection of T-wave alternans at certain levels in patients referred for EP
studies was shown to be as accurate as invasive EP testing in predicting
sudden cardiac death and life-threatening ventricular arrhythmias. In the high
risk population studied for up to 20 months following the procedure, an
actuarial analysis involving 66 patients indicated that 81% of those testing
positive for T-wave alternans died or suffered a life-threatening arrhythmia
within 20 months of the test; only 6% of the patients testing negative for T-
wave alternans did so. As indicated by the chart below, these results were
equivalent to those obtained with invasive EP testing and were far superior to
those which have been reported using other non-invasive methods.
[Graph: T-wave alternans compared to EP testing appears here]
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The Company has sponsored and is continuing to sponsor a number of clinical
studies relating to the CH 2000 System, its T-wave alternans technology and
its Hi-Res electrodes to establish the prognostic value of T-wave alternans
technology. There can be no assurance that the results of such studies will
confirm earlier studies, or that regulatory clearance will be received. The
following table sets forth clinical studies concerning T-wave alternans:
<TABLE>
<CAPTION>
NUMBER OF
STUDY PURPOSE PATIENTS SITE(S) STATUS
----- ------- --------- ------- ------
<S> <C> <C> <C> <C>
Pilot Pacing/EP Assessment of T- 23 Massachusetts Completed(1)
Study* wave alternans General Hospital
during atrial
pacing
Pacing/EP Study* Assessment of T- 83 Massachusetts Completed(2)
wave alternans General Hospital
during atrial
pacing
Pilot Assessment of T- 26 Tufts/New England Completed(3)
Exercise/EP wave alternans Medical Center and
Study during exercise in others
EP patients
Exercise/EP Assessment of T- 100 Tufts/New England Enrolling
Study wave alternans Medical Center and Patients
during exercise in others
EP patients
ICD Pilot Correlation of T- 22 Lahey Clinic, Completed(4)
wave alternans with Massachusetts
activation of ICDs
ICD Study Correlation of T- 100 Massachusetts Enrolling
wave alternans with General Hospital Patients
activation of ICDs
HCM Pilot Identification of 17 St. George's Completed(5)
hypertrophic Medical Center,
cardiomyopathy London
through T-wave
alternans
HCM Study Identification of 100 St. George's Enrolling
hypertrophic Medical Center Patients
cardiomyopathy
through T-wave
alternans
Controls Study Demonstration that 100 SUNY Downstate Enrolling
persons without Medical Center, New Patients
heart disease do York
not have T-wave
alternans
Post-Myocardial Prediction of 300 St. George's Enrolling
Infarction Pilot arrhythmic events Medical Center; Patients
Study in post-myocardial Frankfurt
infarction patients University; Hopital
Nord, Marseille;
University of
Pavia, Italy;
Nippon Medical
School, Tokyo
</TABLE>
* Study not sponsored by the Company.
- --------
(1) Smith JM, et al. Electrical alternans and cardiac electrical instability.
Circulation 1988; 77:110-121.
(2) Rosenbaum DS, et al. Electrical alternans and vulnerability to ventricular
arrhythmia. New England Journal of Medicine 1994; 330:235-241 and
Rosenbaum et al. New approaches for evaluating cardiac electrical
activity: repolarization alternans and body surface Laplacian mapping. In
Cardiac Electrophysiology: From Cell to Bedside, WB Saunders Co.,
Philadelphia, 1994.
(3) Abstract published in PACE 1995, Vol. 18, pg. 796.
(4) In this study of 22 patients with ICD's, TWA was shown to correlate with
previous and subsequent ICD firings. Unpublished.
(5) Abstract published in Momiyama Y, et al. Exercise Induced T-wave Alternans
as a Marker of High-risk Patients with Hypertrophic Cardiomyopathy.
Journal of the American College of Cardiology Feb. 1996 Special Issue.
29
<PAGE>
CARDIAC ELECTRICAL IMAGING FOR ISCHEMIC HEART DISEASE
The Company is conducting research into systems to detect ischemic heart
disease based upon its CEI technology, which provides an image of the
electrical activity of the heart. Animal studies and an initial human study
indicate that CEI is highly sensitive to changes resulting from ischemia, the
lack of oxygen caused by coronary artery disease or acute myocardial
infarction. The Company intends to pursue application of this technology (i)
to provide for enhanced detection and localization of coronary artery disease
during a standard exercise stress test and (ii) to provide faster and more
accurate diagnosis of acute myocardial infarction in patients who arrive at
hospital emergency rooms with acute chest pain.
Cardiac electrical imaging utilizes the Company's own signal processing
software and a proprietary array of disposable "Laplacian" electrodes. Each
electrode is focused in that it provides signals from a highly localized
region of the heart, in contrast to standard electrodes which record signals
from all regions of the heart. An array of Laplacian electrodes provides a
highly sensitive means of detecting the presence of ischemia and localizing
the regions of ischemia within the heart.
The Company is evaluating the incorporation of CEI technology into the CH
2000 System, and intends to initiate additional clinical studies of this
technology in the second half of 1996. In addition, the Company is evaluating
the commercial feasibility of a portable system incorporating CEI technology
for hospital emergency room use to detect acute myocardial infarction.
MARKETING AND SALES
The Company is targeting the market for cardiac stress systems with its CH
2000 System. In 1995, approximately 3,000 cardiac stress systems were sold in
the United States, and the Company believes that the total installed U.S. base
of cardiac stress systems is approximately 23,000 units.
The Company believes that the key to the adoption of the CH 2000 System and
market acceptance of its proprietary technologies to diagnose heart disease
will be continued clinical development and positive clinical experience with
the CH 2000 System, together with the publication of these results in medical
journals. The commercial success of the CH 2000 System will require marketing,
educational and sales efforts to encourage cardiologists and other medical
professionals to utilize T-wave alternans testing and, eventually, CEI, in
their medical practices. The Company plans to establish centers of excellence
at leading cardiology medical centers, fund studies to further demonstrate the
efficiency of its technologies, support seminars and symposiums and
participate in industry trade shows and academic conferences.
The Company intends to market its products in the United States primarily
through a direct sales force in major urban areas and through independent
distributors elsewhere. The Company has hired a Vice President of Sales and
Business Development to lead its sales and marketing organization and is in
the process of hiring additional sales and support personnel as it introduces
the CH 2000 System in the U.S. market.
The Company intends to market its products internationally through
independent distributors. The Company has entered into distribution agreements
with Kontron for the sale of the CH 2000 System in Europe and the Middle East,
and with Fukuda Denshi for the sale of the CH 2000 System in Japan. The
Company sold a limited number of demonstration units to Fukuda Denshi in 1995.
The Company began commercial shipment of complete CH 2000 Systems, including
Hi-Res electrodes, to Kontron in April 1996, and commercial shipments to
Fukuda Denshi are expected to begin following the approval of the Japanese
Ministry of Health, anticipated in late 1996.
MANUFACTURING
Cambridge Heart performs final assembly, including hardware and software
components, and testing of its products, at its headquarters in Bedford,
Massachusetts. The Company believes its facility will be adequate to meet its
needs through 1997. The Company will be required to meet and adhere
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<PAGE>
to all applicable requirements of U.S. and international regulatory agencies,
including GMP standards. The Company's manufacturing facilities are subject to
periodic inspection by both U.S. and international regulatory agencies. See
"--Government Regulation".
The manufacturing process consists primarily of final assembly of purchased
components, testing operations and packaging. Components are purchased
according to the Company's specifications and are inspected and tested by the
Company. The Company relies on outside vendors to manufacture certain major
components used in the CH 2000 System, including its Hi-Res electrodes. A
number of components are currently supplied by sole source vendors. See "Risk
Factors--Dependence Upon Key Suppliers".
RESEARCH AND DEVELOPMENT
The Company has licensed four different product technologies from MIT,
including the technology underlying T-wave alternans and CEI, which were
developed at MIT over a period of approximately ten years at a cost of over
five million dollars. The Company also has rights to any follow-on
technologies developed at MIT which are derived from the four original
technologies. The Company is actively engaged in commercializing the CH 2000
System, and is conducting research and development with respect to its CEI
technology, which is investigational. The Company is evaluating this
technology both for incorporation into the CH 2000 System and for stand-alone
use in hospital emergency rooms.
The Company believes that its technology base will permit it to develop
additional products for use in the diagnosis and treatment of cardiac disease.
Other cardiac diagnostic and treatment areas the Company intends to
investigate include monitoring of blood flow from the heart as a method of
measuring hemodynamic deterioration and the measurement of beat-to-beat
fluctuation in heart rate, blood pressure and respiration rate to measure and
quantify directly the functioning of the body's regulatory mechanisms. These
technologies will require significant additional research and development
expenditures by the Company in the event it should elect to pursue any of
these technologies and the Company has not yet commenced any product
development or clinical testing of these technologies.
The Company's research and development expenses were $589,000 in 1993,
$1,124,000 in 1994 and $1,560,000 in 1995. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations". The Company
expects research and development expenses to increase significantly in the
future as it develops additional products and funds clinical trials on its
products. As of May 1, 1996 the Company had ten employees engaged in research
and development activities.
PATENTS, TRADE SECRETS AND PROPRIETARY RIGHTS
The computer algorithms that allow the CH 2000 System to measure T-wave
alternans and certain aspects of the Company's CEI technology, including the
CEI electrodes, are covered by U.S. patents issued to MIT that are licensed
exclusively to the Company. The Company has applied for a U.S. patent covering
the use of exercise or physiological stress in the measurement of T-wave
alternans, which has been allowed, and corresponding foreign patents are
pending. The Company has also applied for U.S. and foreign patents covering
additional proprietary signal processing algorithms and its Hi-Res electrodes
for use in the measurement of T-wave alternans. The Company owns or is the
exclusive licensee of seven patents issued or allowed and six patents pending
in the United States, with 17 corresponding foreign patents issued or pending
with respect to its technololgy.
The Company believes that its intellectual property and expertise, as
originally licensed from MIT and thereafter developed at the Company,
constitute an important competitive resource, and the Company intends to
continue to aggressively evaluate markets and products which are most
appropriate to exploit the expertise licensed by, and developed at, the
Company. In addition, the
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<PAGE>
Company intends to maintain an active program of intellectual property
protection, both to assure that the proprietary technology developed by the
Company is appropriately protected, and, where necessary, to assure that there
is no infringement of the Company's proprietary technology by competitive
technologies.
The Company's future success will depend, in part, on its ability to
continue to develop patentable products, enforce its patents and obtain patent
protection for its products both in the United States and in other countries.
However, the patent positions of medical device companies, including the
Company, are generally uncertain and involve complex legal and factual
questions. No assurance can be given that patents will issue from any patent
applications owned by or licensed to the Company or that, if patents do issue,
the claims allowed will be sufficiently broad to protect the Company's
technology. In addition, no assurance can be given that any issued patents
owned by or licensed to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company.
The commercial success of the Company will also depend in part on its
neither infringing patents issued to others nor breaching the licenses upon
which the Company's products are based. The Company has licensed significant
technology and patents from third parties, including patents and technology
relating to T-wave alternans and CEI licensed from MIT. The Company's licenses
of patents and patent applications impose various commercialization,
sublicensing, insurance, royalty and other obligations on the Company. Failure
of the Company to comply with these requirements could result in conversion of
the licenses from being exclusive to nonexclusive in nature or, in some cases,
termination of the license.
The MIT License Agreements provide that the licenses granted therein (the
"MIT Licenses") are exclusive worldwide for a period ending on the earlier to
occur of either 12 years after the first commercial sale of products employing
licensed technology or the expiration of 15 years after the effective date of
the Agreements. MIT reserves the right to practice under the licensed patent
rights and to use and distribute to third parties for noncommercial research
purposes the underlying technology . The MIT License Agreements provide that
the Company must achieve certain milestones, which include raising equity
capital, filing applications with the FDA and generating specified revenues
beginning in 1998. If such milestones are not achieved, MIT has the right to
terminate the MIT Licenses. The MIT License Agreements also set forth certain
royalties to be paid by the Company to MIT and contain provisions relating to
potential infringement of the patent rights that allow, but do not require,
either party to take action against such infringement. The MIT License
Agreements further provide that the Company will indemnify MIT for all losses
suffered by MIT through the Company's use of the licensed technology. The
royalty rate under each of the licenses is 2%, but has been amended in the
case of the T-wave alternans technology to 1.5% due to the significant value
added by the Company. For a description of the Company's license agreement
with Dr. Cohen, see "Certain Transactions".
The Company also relies on unpatented trade secrets to protect its
proprietary technology, and no assurance can be given that others will not
independently develop or otherwise acquire substantially equivalent
technologies or otherwise gain access to the Company's proprietary technology
or disclose such technology or that the Company can ultimately protect
meaningful rights to such unpatented proprietary technology. The Company
relies on confidentiality agreements with its collaborators, employees,
advisors, vendors and consultants to protect its trade secrets. There can be
no assurance that these agreements will not be breached, that the Company
would have adequate remedies for any breach or that the Company's trade
secrets will not otherwise become known or be independently developed by
competitors. Failure to obtain or maintain patent and trade secret protection
for the Company's products, for any reason, would have a material adverse
effect on the Company's business, financial condition and results of
operations.
32
<PAGE>
COMPETITION
The medical device market is characterized by intensive development efforts
and rapidly advancing technology. The future success of the Company will
depend, in large part, upon its ability to anticipate and keep pace with
advancing technology and competitive innovations. However, there can be no
assurance that the Company will be successful in identifying, developing and
marketing new products or enhancing its existing products. In addition, there
can be no assurance that new products or alternative diagnostic techniques
will not be developed that will render the Company's current or planned
products obsolete or inferior. Rapid technological development by competitors
may result in the Company's products becoming obsolete before the Company
recovers a significant portion of the research, development and
commercialization expenses incurred with respect to such products. Alternative
technologies exist today in each of the areas being addressed by the Company,
including ECGs, Holter monitors, ultrasound tests and systems for measuring
cardiac late potentials.
Competition from medical devices which help to diagnose cardiac disease is
intense and likely to increase. The Company's competitors include
manufacturers of ECG stress test equipment, including major multinational
companies. Many of the Company's competitors and potential competitors have
substantially greater capital resources, name recognition, research and
development experience and regulatory, manufacturing and marketing
capabilities. Many of these competitors offer well established, broad product
lines and ancillary services not offered by the Company. Some of the Company's
competitors have long-term or preferential supply arrangements with hospitals
that may act as a barrier to market entry. Other large health care companies
may enter the non-invasive cardiac diagnostic product market in the future.
Competing companies may succeed in developing products that are more
efficacious or less costly than any that may be developed by the Company, and
such companies also may be more successful than the Company in producing and
marketing such products or their existing products. Competing companies may
also introduce competitive pricing pressures that may adversely affect the
Company's sales levels and margins. There can be no assurance that the Company
will be able to compete successfully with existing or new competitors.
GOVERNMENT REGULATION
The manufacture and sale of medical devices intended for commercial
distribution are subject to extensive governmental regulation in the United
States. Medical devices are regulated in the United States by the FDA and
generally require pre-market clearance or pre-market approval prior to
commercial distribution. In addition, certain material changes or
modifications to medical devices also are subject to FDA review and clearance
or approval. The FDA regulates the research, testing, manufacture, safety,
labeling, storage, record keeping, advertising and distribution of medical
devices in the United States. Noncompliance with applicable requirements can
result in failure of the government to grant pre-market clearance or approval
for devices, withdrawal of approval, total or partial suspension of
production, fines, injunctions, civil penalties, recall or seizure of
products, and criminal prosecution.
Medical devices are classified into one of three classes, Class I, II or
III, on the basis of the controls deemed by the FDA to be necessary to
reasonably ensure their safety and effectiveness.
Class I devices are subject to general controls (e.g., labeling, pre-market
notification and adherence to GMP standards). Class II devices are subject to
general controls and special controls (e.g., performance standards, post-
market surveillance, patient registries and FDA guidelines). Generally, Class
III devices are those that must receive pre-market approval by the FDA to
ensure their safety and effectiveness (e.g., life-sustaining, life-supporting
and implantable or new devices which have not been found to be substantially
equivalent to legally marketed devices), and require clinical testing to
ensure safety and effectiveness and FDA approval prior to marketing and
distribution. The FDA also has the authority to require clinical testing of
Class I and Class II devices. A PMA application must be filed if a proposed
device is not substantially equivalent to a legally marketed predicate device
or if it is a Class III device for which the FDA has called for such
application.
33
<PAGE>
Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
pre-market notification ("510(k) notification") submission or approval of a
PMA application. If a medical device manufacturer or distributor can establish
that a device is "substantially equivalent" to a legally marketed Class I or
Class II device, or to a Class III device for which the FDA has not called for
PMAs, the manufacturer or distributor may seek clearance from the FDA to
market the device by filing a 510(k) notification. The 510(k) notification may
need to be supported by appropriate data establishing the claim of substantial
equivalence to the FDA. The FDA recently has been requiring a more rigorous
demonstration of substantial equivalence.
Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until an
order is issued by the FDA. At this time, the FDA typically responds to the
submission of a 510(k) notification within 90 to 200 days. An FDA order may
declare that the device is substantially equivalent to a legally marketed
device and allow the proposed device to be marketed in the United States. The
FDA, however, may determine that the proposed device is not substantially
equivalent or requires further information, including clinical data, to make a
determination regarding substantial equivalence. Such determination or request
for additional information could delay market introduction of the product that
is the subject of the 510(k) notification.
If human clinical trials of a device are required and if the device presents
a "significant risk," the manufacturer or distributor of the device is
required to file an investigational device exemption ("IDE") application with
the FDA prior to commencing human clinical trials. The IDE application must be
supported by data, typically the result of animal and, possibly, mechanical
testing. If the IDE application is approved by the FDA, human clinical trials
may begin at a specific number of investigational sites with a maximum number
of patients, as approved by the FDA.
If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent to a legally marketed device, the
manufacturer or distributor must seek pre-market approval of the proposed
device through submission of a PMA application. A PMA application must be
supported by extensive data, including preclinical and clinical trial data, as
well as extensive literature to prove the safety and effectiveness of the
device. Following receipt of a PMA application, if the FDA determines that the
application is sufficiently complete to permit a substantive review, the
agency will "file" the application. The FDA has 180 days to review a PMA
application, although the review of an application more often occurs over a
protracted time period, and generally takes two years or more from the filing
date to complete.
The PMA approval process can be expensive, uncertain and lengthy. A number
of devices for which pre-market approval has been sought have never been
approved for marketing. The review time is often significantly extended by the
FDA, which may require more information or clarification of information
already provided in the submission. During the review period, an advisory
committee likely will be convened by the FDA to review and evaluate the
application and provide recommendations to the agency as to whether the device
should be approved. In addition, the FDA will inspect the manufacturing
facility to ensure compliance with the GMP regulations for medical devices
prior to approval of the PMA application. If granted, the approval may include
significant limitations on the indicated uses for which a product may be
marketed.
Any products manufactured or distributed by the Company are subject to
pervasive and continuing regulation by the FDA including record keeping
requirements, reporting of adverse experience with the use of the device,
post-market surveillance, post-market registry and other actions deemed
necessary by the FDA. The FDA's regulations require agency approval of a PMA
or 510(k) supplement for certain changes if they affect the safety and
effectiveness of the device, including, but not limited to, new indications
for use, labeling changes, the use of a different facility to manufacture,
process or package the device, changes in manufacturing methods or quality
control systems and changes in performance
34
<PAGE>
or design specifications. Failure by the Company to receive approval of a PMA
or 510(k) supplement regarding the use of a different manufacturing facility
or any other change affecting the safety or effectiveness of an approved or
cleared device on a timely basis, or at all, would have a material adverse
effect on the Company's business, financial condition and results of
operations.
Sales of medical device products outside the United States are subject to
foreign regulatory requirements that vary from country to country. The time
required to obtain approvals required by foreign countries may be longer or
shorter than that required for FDA approval, and requirements for licensing
may differ from FDA requirements. Failure to comply with regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations. The current regulatory
environment in Europe for medical devices differs significantly from that in
the United States. There is currently no universally accepted definition of a
medical device in Europe and there is no common approach to medical device
regulation among the various countries. There are several different regulatory
regimes operating within the different European countries. Regulatory
requirements for medical devices range from no regulations in some countries
to rigorous regulations approaching the requirements of the FDA's regulations
for Class III medical devices. Several countries require that device safety be
demonstrated prior to approval for commercialization. The regulatory
environment in certain European countries is expected to undergo major changes
as a result of the creation of medical directives by the European Union.
The CH 2000 System has received 510(k) clearance from the FDA for sale in
the United States. A 510(k) pre-market approval application for the Hi-Res
electrodes was filed in May 1996 and clearance is expected to be received in
the fourth quarter of 1996. The timing of the electrode clearance cannot be
predicted with great accuracy. However, because no claims concerning T-wave
alternans are being made for the electrodes (the only claim is that they
reduce noise in the ECG which is readily demonstrable), and because the
Company believes the electrodes meet all applicable safety and performance
standards, it is anticipated that the electrodes will be cleared under the
510(k) process. Until the electrodes are cleared, the Company can, however,
market and sell the CH 2000 System without the Hi-Res electrodes as well as
make the electrodes available at cost to those conducting clinical studies of
T-wave alternans. However, the Company has chosen to limit sales of the CH2000
System in the United States to a limited number of clinical sites until the
Hi-Res electrodes receive FDA clearance.
The 510(k) clearance for the CH 2000 System includes the claim that the CH
2000 System can measure T-wave alternans but no claim about the applicability
or prognostic use of the alternans measurement. The Company is currently
conducting further clinical studies and expects to make a subsequent 510(k)
submission to the FDA with additional clinical data in order to obtain a
subsequent clearance with broader claims. This submission is expected to be
made in the first half of 1997, with clearance possible by early 1998, but
there can be no assurance that such clearance will be obtained on a timely
basis, if at all. Until clearance of the broader prognostic claims is
obtained, the Company may not publicize the prognostic capabilities of its T-
wave alternans technology.
Internationally, the Company received the CE mark for sale in Europe for the
CH 2000 System in April 1996, and application has been made for approval with
the Ministry of Health in Japan.
REIMBURSEMENT
Suppliers of health care products and services are greatly affected by
Medicare, Medicaid and other government insurance programs, as well as by
private insurance reimbursement programs. Third party payors (Medicare,
Medicaid, private health insurance, health administration authorities in
foreign countries and other organizations) may affect the pricing or relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement provided for by such payors to the physicians and clinics
utilizing the CH 2000 System or by taking the position that such reimbursement
is not available at all.
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<PAGE>
The Company believes that the availability and level of third party
reimbursement will influence the decisions of physicians, clinics and
hospitals to purchase and use the Company's products and thereby affect the
pricing of the Company's products. The Company's strategy to obtain approval
of payments to physicians using its products includes (i) enlisting the
assistance of leading cardiac specialists in making presentations to health
care administrators to inform them of the benefits of the additional data
provided by the CH 2000 System, and of the potential pharmacoeconomic benefits
resulting from the use of the products and (ii) working with professional
organizations to foster awareness and support for its products.
Several states and the federal government are investigating a variety of
alternatives to reform the health care delivery system and reduce and control
health care spending. These reform efforts include proposals to limit spending
on health care items and services, limit coverage for new technology and limit
or control directly the price health care providers and drug and device
manufacturers may charge for their services and products. The scope and timing
of such reforms cannot be predicted, but if adopted and implemented, such
reforms could have a material adverse effect on the Company. See "Risk
Factors--Uncertainty Relating to Third-Party Reimbursement".
SCIENTIFIC ADVISORY BOARD
The Company utilizes a number of scientists and physicians to advise it on
scientific and medical matters. The Company's Scientific Advisory Board meets
quarterly and its members consult individually with the Company on a periodic
basis. Generally, each of its members have been awarded options to purchase
shares of the Company's Common Stock. The current members of the Company's
Scientific Advisory Board are:
Richard J. Cohen, M.D., Ph.D., is the scientific founder of Cambridge Heart,
serves as Chairman of its Scientific Advisory Board, and as a director and
consultant to the Company. See "Management--Executive Officers and Directors".
Jeremy Ruskin, M.D., has been the Director of the Cardiac Arrhythmia Service
and the Electrophysiology Laboratory of the Massachusetts General Hospital
since 1978. He has been an Associate Professor of Medicine at the Harvard
Medical School since 1983. He has served on the editorial boards of seven
medical journals including Annals of Internal Medicine, The Journal of the
American College of Cardiology and The Journal of Cardiovascular
Electrophysiology, and is a reviewer for 12 major medical and cardiology
journals including the New England Journal of Medicine, Circulation and the
Journal of Electrophysiology. He has been an advisor to various medical
committees and associations including a member of the FDA Cardiovascular and
Renal Drugs Advisory Committee (1986-1991) and has served as program chairman
of the 42nd Annual Scientific Session of the American College of Cardiology.
Dr. Ruskin earned a B.S. from Tufts University and an M.D. from Harvard
Medical School.
Myron L. Weisfeldt, M.D., is the Chairman of the Department of Medicine at
Columbia University College of Physicians and Surgeons, the Director of
Medical Service at The Presbyterian Hospital and is Head of the Cardiovascular
Center at Columbia Presbyterian Medical Center. He obtained his Clinical and
Research Fellowship in Cardiology at Massachusetts General Hospital. From 1987
to 1990, Dr. Weisfeldt was Chairman of the Cardiology Advisory Board of the
National Heart, Lung and Blood Institute and held the position of President of
the American Heart Association from 1989 to 1990. Through 1991, he held
various positions with The Johns Hopkins University School of Medicine
including Director of the Peter Belfer Laboratory for Myocardial Research,
Director of the Cardiology Division and Professor of Medicine. Dr. Weisfeldt
serves on the editorial board of Circulation and the Journal of American
College of Cardiology. Dr. Weisfeldt received a B.A. from The Johns Hopkins
University and an M.D. from The Johns Hopkins University School of Medicine.
Douglas P. Zipes, M.D., has been Professor of Medicine at the Indiana
University School of Medicine since 1976 and since 1995 has been Chairman of
the Department of Cardiology. Dr. Zipes
36
<PAGE>
serves as the Chairman of the Medical Advisory Board of Medtronic, Inc. Dr.
Zipes serves on the Board of Trustees of the American College of Cardiology
and North American Society of Pacing and Electrophysiology, of which he was
President in 1989. He is a member of the Cardiology Advisory Committee of the
National Heart, Lung and Blood Institute, a member of the Subspeciality Board
on Cardiovascular Disease of the American Board of Internal Medicine and
Chairman of the Test Committee on Clinical Cardiac Electrophysiology. Dr.
Zipes is Editor in Chief of Cardiology in Review and the Journal of
Cardiovascular Electrophysiology. He presently serves on the editorial boards
of the American Journal of Cardiology, American Heart Journal, American
Journal of Medicine, Cardiovascular Drugs and Therapy, Circulation, PACE and
the Japanese Heart Journal. Dr. Zipes earned a B.A. from Dartmouth College, a
Bachelors in Medical Science from Dartmouth Medical School and an M.D. from
Harvard Medical School.
EMPLOYEES
As of May 1, 1996, the Company had 18 full-time employees, of whom 4 hold
Ph.D. degrees and 8 hold other advanced degrees. None of the Company's
employees is represented by a collective bargaining agreement, nor has the
Company experienced work stoppages. The Company believes that its relations
with its employees are good.
FACILITIES
The Company's facilities consist of approximately 11,000 square feet of
office, research and manufacturing space located at 1 Oak Park Drive, Bedford,
Massachusetts pursuant to a lease which expires in the year 2000. The Company
believes that suitable additional space will be available to it, when needed,
on commercially reasonable terms.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeffrey M. Arnold.............. 47 President, Chief Executive Officer and
Director
Thomas V. Hennessey, Jr. ...... 47 Vice President of Operations, Treasurer and
Chief Financial Officer
Paul Albrecht, Ph.D. .......... 39 Vice President of Engineering and Secretary
J. Alex Martin................. 43 Vice President of Sales and Business
Development
Robert T. Miragliuolo.......... 43 Vice President of Clinical and Regulatory
Affairs
Marlene Krauss, M.D.(1)........ 51 Chairperson
Zachary C. Berk(2)............. 48 Director
Richard J. Cohen, M.D., 45 Director
Ph.D. ........................
M. Fazle Husain(1)............. 32 Director
David F. Muller, Ph.D.(1)...... 47 Director
David F. Rollo, M.D., Ph.D. ... 57 Director
Rolf S. Stutz(2)............... 47 Director
</TABLE>
- --------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
Jeffrey M. Arnold. Mr. Arnold has been President and Chief Executive Officer
of the Company since September 1993. From 1990 to 1992, Mr. Arnold was
President and Chief Executive Officer and a director of Molecular Simulations
Inc., formerly Polygen Corporation, a leading supplier of software for
rational drug design. From 1992 until 1993, Mr. Arnold was an independent
management consultant providing interim executive management to high
technology companies. He was formerly Vice President of Operations,
Instrumentation Products for Datascope Corporation and has held positions as
director of marketing and director of research and development positions for
the medical systems division of Becton Dickinson. Mr. Arnold is a director of
Momentum Software Corporation. Mr. Arnold received a B.S. in Electrical
Engineering from MIT.
Thomas V. Hennessey, Jr. Mr. Hennessey has been Vice President of Operations
and Chief Financial Officer since November 1995. From 1992 to 1995, Mr.
Hennessey was the Chief Financial Officer at AutoImmune, Inc., a biotechnology
company. From 1991 to 1992 he was Vice President and Chief Financial Officer
of Medical Diagnostics, Inc., a provider of medical imaging services. Earlier
in his career he held positions at the Mansfield Division of Boston Scientific
Corporation and at Digital Equipment Corporation. Mr. Hennessey received a
B.S. and an M.S. in Mechanical Engineering from MIT and an M.B.A. from Harvard
Graduate School of Business Administration.
Paul Albrecht, Ph.D. Dr. Albrecht has been Vice President of Engineering
since June 1993. From 1991 to 1993, Dr. Albrecht was Engineering Manager at
Cerner Corporation, where he previously served as Director of Research and
Development and Principal of Intellimetrics Corporation (which was acquired by
Cerner in 1991). Dr. Albrecht received a B.A. in Physics from Dartmouth
College, an M.S. in Electrical Engineering from MIT and a Ph.D. in Medical
Engineering from the Harvard-MIT Division of Health Sciences and Technology.
J. Alex Martin. Mr. Martin has been Vice President of Sales and Business
Development since June 1995. From 1989 to 1995, Mr. Martin was employed by the
USCI Division of C.R. Bard Inc., during which time he served in various
positions, including Director of Marketing for the Angioplasty Division
38
<PAGE>
and National Sales Manager for USCI. Mr. Martin has over 15 years of sales and
marketing experience in the vascular and cardiovascular medical device
industry. Mr. Martin received a B.G.S. from the University of Kentucky.
Robert T. Miragliuolo. Mr. Miragliuolo has been Vice President of Regulatory
and Clinical Affairs since April 1996. From 1987 until April 1996, Mr.
Miragliuolo was employed by C.R. Bard, Inc. During this time he served in
several positions, including Corporate Director of Scientific Affairs and then
Director of Regulatory Affairs for Cardiology. Prior to that he was Principal
Research Scientist at Lever Brothers Company. Mr. Miragliuolo has a B.S. in
Biology from Providence College and an M.S. in Biostatistics from the
University of Vermont.
Marlene Krauss, M.D. Dr. Krauss, a founder of the Company, has been
Chairperson, Secretary and a Director of the Company since 1990. Since August
1991 Dr. Krauss has served as Chairperson and Chief Executive Officer of KBL
Healthcare, Inc., a merchant and investment banking firm focused exclusively
on the health care industry. Dr. Krauss was formerly President and Managing
Director of the Med-Tech Group, a division of D.H. Blair & Co. Dr. Krauss
received a B.A. from Cornell University, an M.B.A. from Harvard Graduate
School of Business Administration and an M.D. from Harvard Medical School.
Zachary C. Berk. Dr. Berk, a founder of the Company, has been a Director of
the Company since 1993. Since August 1991 Dr. Berk has been Managing Director
of KBL Healthcare, Inc., which he co-founded, and Vice President and Treasurer
of KBL Healthcare Acquisition Corp. Dr. Berk is a former Senior Vice President
of the Med-Tech Group, a division of D.H. Blair & Co. Dr. Berk received a B.S.
and Doctorate of Optometry from Pacific University.
Richard J. Cohen, M.D., Ph.D. Dr. Cohen, the scientific founder of the
Company, has been a director of and consultant to the Company since February
1993. Dr. Cohen has been, since 1979, a professor of Health Sciences and
Technology at the Harvard MIT Division of Health Sciences and Technology and
is on the staff at the Brigham and Women's Hospital and Children's Hospital,
both in Boston. From 1985 to 1995, Dr. Cohen was the Director of the Harvard-
MIT Center for Biomedical Engineering, and he is currently the Director of the
NASA Center for Quantitative Cardiovascular Physiology, Modeling and Data
Analysis. He serves on the editorial board of the Journal of Cardiovascular
Electrophysiology and The Annals of Noninvasive Engineering. Dr. Cohen
received a B.A. from Harvard College, an M.D. from Harvard Medical School and
a Ph.D. in Physics from MIT.
M. Fazle Husain. Mr. Husain has been a director of the Company since July
1995. Since August 1991 Mr. Husain has been a Vice President of Morgan Stanley
& Co. Incorporated and of the Managing General Partner of certain partnerships
which beneficially own Common Stock of the Company. Mr. Husain also serves on
the Board of Directors of Enterprise Systems, Inc. Mr. Husain received an
Sc.B. in Chemical Engineering from Brown University, and an M.B.A. from the
Harvard Graduate School of Business Administration.
David F. Muller, Ph.D. Dr. Muller has been a director of the Company since
1993. Since 1986 Dr. Muller has been President and Director of Summit
Technology, Inc., a manufacturer of excimer lasers for ophthalmology which he
helped to found. He also was a founder of ExciMed Technologies, a joint
venture, and the predecessor of Summit Technology. Dr. Muller received his
A.B. in Chemistry and Physics from Boston University, a Ph.D. in Physical
Chemistry from Cornell University and an M.B.A. from the Wharton School of
Finance.
David F. Rollo, M.D., Ph.D. Dr. Rollo has been a director of the Company
since 1993. Since April 1995 Dr. Rollo has been Senior Vice President of HCIA
HealthInfo Co., a medical device company. From October 1992 to April 1995, he
was President and Chief Executive Officer of Metricor, Inc., a health care
consulting organization and former subsidiary of Humana, Inc., where he was
Senior Vice President of Medical Affairs from September 1980 to October 1992.
Dr. Rollo is a Director of Positron Corporation, ADAC Laboratories and Raytel
Medical Corp. He received a B.A. in Mathematics, Physics and Chemistry from
Harper College, Binghamton, New York, an M.D. from Upstate Medical Center, a
Ph.D. in Physics from the Johns Hopkins Medical Institute, and an M.S. in
Radiological Physics from the University of Miami.
39
<PAGE>
Rolf S. Stutz. Mr. Stutz has been a director of the Company since 1993.
Since 1983, he has been President, Chief Executive Officer and director of
Zoll Medical, a medical device manufacturer. Mr. Stutz is also a Director of
Zoll Medical Corporation and Hemasure, Inc. Mr. Stutz received an A.B. from
the University of North Carolina and an M.B.A. from the Harvard Graduate
School of Business Administration.
Following this Offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. The
Board will consist of three Class I Directors (Dr. Berk, Mr. Arnold and Dr.
Rollo), three Class II Directors (Dr. Cohen, Mr. Husain and Dr. Muller) and
two Class III Directors (Dr. Krauss and Mr. Stutz). At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring. The
terms of the Class I Directors, Class II Directors and Class III Directors
will expire upon the election and qualification of successor directors at the
annual meeting of stockholders to be held during the calendar years 1997, 1998
and 1999, respectively.
Each officer serves at the discretion of the Board of Directors. Dr. Krauss
is married to Dr. Berk. There are no other family relationships among any
executive officers or directors of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees
of and consultants to the Company, establishes and approves salaries and
incentive compensation for certain senior officers and employees and
administers and grants stock options pursuant to the Company's stock plans.
The current members of the Compensation Committee are Dr. Krauss, Mr. Husain
and Dr. Muller. The Board of Directors also has an Audit Committee, which
reviews the results and scope of the audit and other services provided by the
Company's independent public accountants. The current members of the Audit
Committee are Dr. Berk and Mr. Stutz.
COMPENSATION OF DIRECTORS
The Company's non-employee directors, other than those representing major
stockholders of the Company, receive a fee of $500 per meeting of the Board of
Directors. All non-employee directors receive reasonable travel and out-of-
pocket expenses for attendance at meetings of the Board of Directors.
Directors are also eligible to receive stock options under the 1996 Director
Stock Option Plan (the "Director Plan"). See--"Director Option Plan."
DIRECTOR OPTION PLAN
The Director Plan was adopted by the Board of Directors in May 1996, was
approved by the stockholders in June 1996, and will become effective upon the
closing of this Offering. Under the terms of the Director Plan, options (the
"Director Options") to purchase 10,000 shares of Common Stock will be granted
to each of Dr. Muller, Dr. Rollo and Mr. Stutz on the closing of the Offering
and thereafter to each person who becomes a non-employee director after the
closing date of the Offering and who is not otherwise affiliated with the
Company, effective as of the date of election to the Board of Directors. The
Director Options will vest in equal annual installments over three years after
the date of grant. Director Options will become immediately exercisable upon
the occurrence of a change in control (as defined in the Director Plan). A
total of 100,000 shares of Common Stock may be issued upon the exercise of
stock options granted under the Director Plan. The exercise price of options
granted under the Director Plan will equal the closing price of the Common
Stock on the Nasdaq National Market on the date of grant.
40
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by the
Chief Executive Officer of the Company and each of the other most highly
compensated executive officers during the fiscal year ended December 31, 1995
(the Chief Executive Officer and such other executive officers are referred to
as the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- ------------
NUMBER OF
SECURITIES ALL OTHER
SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION(S) ($) ($) OPTIONS ($)
------------------------------ ---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Jeffrey M. Arnold............... $ 157,466 $ 30,000 191,500 --
President and Chief Executive
Officer
Thomas V. Hennessey, Jr.(1)..... 13,564 -- 75,000 --
Vice President of Operations,
Chief Financial Officer and
Treasurer
Paul Albrecht, Ph.D. ........... 107,559 25,000 -- --
Vice President of Engineering
and Secretary
J. Alex Martin(2)............... 57,468 5,417 75,000 --
Vice President of Sales and
Business Development
</TABLE>
- --------
(1) Joined the Company in November 1995.
(2) Joined the Company in June 1995.
OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options made during fiscal 1995 to each of the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
------------------------------- REALIZABLE
PERCENT VALUE AT
OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERMS(2)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------
NAME GRANTED (#)(1) YEAR ($/SHARE) DATE 5% 10%
---- -------------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey M. Arnold....... 191,500 48.3% $0.50 05/22/05 $ 60,217 $ 152,601
Thomas V. Hennessey,
Jr. ................... 75,000 18.9 1.00 11/20/05 47,167 119,531
Paul Albrecht, Ph.D..... -- -- -- -- -- --
J. Alex Martin.......... 75,000 18.9 1.00 06/15/05 47,167 119,531
</TABLE>
- --------
(1) The expiration date of each option is the tenth anniversary of the date on
which it was originally granted. These options are intended to qualify as
incentive stock options and are exercisable in five equal installments
commencing on the first anniversary of the date of grant.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10%, compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
option holders' continued employment through the option period, and the
date on which the options are exercised.
41
<PAGE>
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers on
December 31, 1995, and the number and value of any options exercised during
the year ended December 31, 1995 by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END($)(1)
ACQUIRED REALIZED ------------------------------ -------------------------
NAME ON EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey M. Arnold....... 91,163 $16,409 155,300 561,199 $130,012 $318,578
Thomas V. Hennessey,
Jr..................... -- -- -- 75,000 -- --
Paul Albrecht, Ph.D..... 22,500 22,455 45,000 135,000 36,000 121,365
J. Alex Martin.......... -- -- -- 75,000 -- --
</TABLE>
- --------
(1) The value of the unexercised, in-the-money options on December 31, 1995 is
based on the difference between the fair market value of the shares as of
such date ($1.00) and the per share option exercise price, multiplied by
the number of shares of Common Stock underlying the options.
EMPLOYMENT AGREEMENTS
The Company is a party to an employment agreement with Mr. Arnold for the
period commencing September 1, 1993 and ending September 1, 1998. The
agreement provides that Mr. Arnold is entitled to receive a base salary of
$150,000 and is eligible to receive a performance-based bonus of up to $50,000
per year. The Company also granted Mr. Arnold an option to purchase 616,162
shares of Common Stock, of which 123,232 have an exercise price of $.02 per
share, 401,767 have an exercise price of $.20 per share and 91,163 have an
exercise price of $2.00 per share. If his employment is terminated by the
Company without cause, Mr. Arnold will be entitled to receive severance
compensation in an amount equal to nine months' base salary. In the event of a
Change in Control of the Company (as defined in the employment agreement), all
options which are currently outstanding will become immediately exercisable.
Furthermore, Mr. Arnold is entitled to terminate his employment agreement
within 90 days of a Change in Control of the Company and to receive severance
compensation equal to nine months' base salary. The agreement also contains a
non-competition covenant pursuant to which Mr. Arnold is prohibited from
competing with the Company during his employment with the Company and for a
period of one year thereafter. Throughout the term of this employment
agreement, the Board agrees to nominate Mr. Arnold, and the Company agrees to
use its best efforts to cause Mr. Arnold to be elected, to the Board of
Directors of the Company.
The Company is a party to an employment agreement with Dr. Albrecht which
provides a five-year term ending on June 15, 1998. The agreement provides for
an annual base salary of $100,000, as well as an annual bonus of up to
$30,000. The Company also granted Dr. Albrecht an option to purchase 225,000
shares of Common Stock, of which 112,500 have an exercise price of $.002 per
share and 112,500 have an exercise price of $.20 per share. If his employment
is terminated by the Company without cause, Dr. Albrecht will be entitled to
receive severance compensation in an amount equal to six months' base salary.
The agreement also contains a non-competition covenant pursuant to which Dr.
Albrecht is prohibited from competing with the Company during his employment
by the Company and for a period of 18 months thereafter.
EMPLOYEE BENEFIT PLANS
1993 AMENDED AND RESTATED INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
The Company's 1993 Incentive and Non-Qualified Stock Option Plan (the "1993
Option Plan") was adopted by the Company in September 1993. The 1993 Option
Plan provides for the grant of
42
<PAGE>
stock options to key employees and consultants of the Company and any parent
or subsidiary of the Company. Under the 1993 Option Plan, the Company may
grant options that are intended to qualify as incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") ("incentive stock options"), or options not intended to qualify
as incentive stock options ("non-statutory options"). Incentive stock options
may be granted only to employees of the Company. A total of 1,688,663 shares
of Common Stock may be issued upon the exercise of options granted under the
1993 Option Plan.
The 1993 Option Plan is administered by the Stock Option Committee of the
Board of Directors. Subject to the provisions of the 1993 Option Plan, the
Stock Option Committee has the authority to select the employees to whom
options are granted and determine the terms of each option, including (i) the
number of shares of Common Stock subject to the option, (ii) when the option
becomes exercisable, (iii) the option exercise price, which, in the case of
incentive stock options, must be at least 100% (110% in the case of incentive
stock options granted to a stockholder owning in excess of 10% of the
Company's Common Stock) of the fair market value of the Common Stock as of the
date of grant, and (iv) the duration of the option (which, in the case of
incentive stock options, may not exceed ten years (five years in the case of a
stockholder owning in excess of 10% of the Company's Common Stock).
Payment of the option exercise price may be made in cash, by check or, in
some circumstances, by delivery of shares of Common Stock, provided such
shares have been held for at least six months. The 1993 Option Plan provides
further that the Stock Option Committee may allow additional forms of payment,
so long as such forms of payment are consistent with applicable laws and
regulations. Options are not assignable or transferable except by will or the
laws of descent and distribution and, in the case of non-statutory options,
pursuant to a qualified domestic relations order (as defined in the Code).
As of May 1, 1996, the Company had 18 full-time employees, all of whom were
eligible to participate in the 1993 Option Plan; however, the Company does not
intend to award options under the 1993 Option Plan after the closing of the
Offering.
The 1993 Stock Option Plan places certain restrictions on the transfer of
stock acquired upon the exercise of incentive stock options granted under the
1993 Option Plan. The Stock Option Committee may, in its sole discretion,
include additional provisions in any option or award granted or made under the
1993 Option Plan, including without limitation restrictions on transfer,
repurchase rights, commitments to pay cash bonuses, to make, arrange for or
guaranty loans or to transfer other property to optionees upon exercise of
options, or such other provisions as shall be determined by the Stock Option
Committee, so long as not inconsistent with the 1993 Option Plan or with
applicable law. The Stock Option Committee may also, in its sole discretion,
accelerate or extend the date or dates on which all or any particular option
or options granted under the 1993 Option Plan may be exercised.
1996 EQUITY INCENTIVE PLAN
The Company's 1996 Equity Incentive Plan (the "1996 Plan") was adopted by
the Board of Directors on May 29, 1996 and approved by the stockholders of the
Company on June , 1996. The 1996 Plan provides for the grant of stock awards,
restricted stock awards, stock options, stock appreciation rights and
performance shares, to employees, officers and directors of, and consultants
or advisers to, the Company and its subsidiaries. Under the 1996 Plan, the
Company may grant incentive stock options or nonstatutory options. Incentive
stock options may only be granted to employees of the Company. A total of
1,000,000 shares of Common Stock may be granted under the 1996 Plan. Unless
otherwise terminated, the 1996 Plan will terminate on June , 2006.
The 1996 Plan is administered by the Compensation Committee of the Board of
Directors. Subject to the provisions of the 1996 Plan, the Compensation
Committee has the authority to select the employees to whom options are
granted and determine the terms of each option, including (i) the
43
<PAGE>
number of shares of Common Stock subject to the option, (ii) when the option
becomes exercisable, (iii) the option exercise price, which, in the case of
incentive stock options, must be at least 100% (110% in the case of incentive
stock options granted to a stockholder owning in excess of 10% of the
Company's Common Stock) of the fair market value of the Common Stock as of the
date of grant, and (iv) the duration of the option (which, in the case of
incentive stock options, may not exceed ten years; five years in the case of
incentive stock options granted to stockholders owning in excess of 10% of the
Company's Common Stock). The Compensation Committee may, in its sole
discretion, include additional provisions in any option or award granted or
made under the 1996 Plan, so long as not inconsistent with the 1996 Plan or
applicable law. The Compensation Committee may also, in its sole discretion,
accelerate or extend the date or dates on which all or any particular option
or options granted under the 1996 Plan may be exercised.
Payment of the option exercise price may be made in cash, shares of Common
Stock, a combination of cash or stock, by a broker-assisted cashless exercise
or by any other method (including delivery of a promissory note payable on
terms specified by the Compensation Committee) approved by the Compensation
Committee consistent with Section 422 of the Code and Rule 16b-3 ("Rule 16b-
3") under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
As of May 15, 1996, the Company had 18 employees, all of whom were eligible
to participate in the 1996 Plan. The maximum number of shares which may be
granted in any calendar year to any optionee is 300,000. The number of
individuals receiving stock options varies from year to year depending upon
various factors, such as the number of promotions and the Company's hiring
needs during the year, and thus the Company cannot now determine the number of
shares of Common Stock to be awarded to any particular current executive
officer, to all current executive officers as a group or to non-executive
employees as a group.
All options are nontransferable other than by will or the law of descent and
distribution and, in the case of options which are not incentive stock
options, pursuant to a qualified domestic relations order. Incentive stock
options are exercisable during the lifetime of the option holder only while
the option holder is in the employ of the Company, or within three months
after termination of employment. In the event that termination is due to death
or disability, or if death occurs within three months after termination, the
option is exercisable for a one-year period thereafter.
To the extent not exercised, all options granted under the 1996 Plan shall
terminate immediately prior to a dissolution or liquidation of the Company. In
the event of a merger of the Company or the sale of substantially all of the
assets of the Company, the Board of Directors shall have the discretion to
accelerate the vesting of the options granted under the 1996 Plan.
Federal Income Tax Consequences. No taxable income will be recognized by an
optionee upon the grant or exercise of an incentive stock option (provided
that the difference between the option exercise price and the fair market
value of the stock on the date of exercise must be included in the optionee's
"alternative minimum taxable income"), and no corresponding expense deduction
will be available to the Company. Generally, if an optionee holds shares
acquired upon the exercise of incentive stock options until the later of (i)
two years from the grant of the option and (ii) one year from the date of
transfer of the purchased shares to him or her (the "Statutory Holding
Period"), any gain to the optionee upon a sale of such shares will be treated
as capital gain. The gain recognized upon the sale of the stock is the
difference between the option price and the sale price of the stock. The net
federal income tax effect on the holder of incentive stock options is to
defer, until the stock is sold, taxation of any increase in the stock's value
from the time of grant to the time of exercise, and to cause such increase to
be treated as capital gain.
If the optionee sells the shares prior to the expiration of the Statutory
Holding Period, he or she will realize taxable income at ordinary income tax
rates in an amount equal to the lesser of (i) the fair market value of the
shares on the date of exercise less the option price, or (ii) the amount
realized on
44
<PAGE>
the sale less the option price, and the Company will receive a corresponding
business expense deduction. Any additional gain will be treated as long-term
capital gain if the shares are held for more than one year prior to the sale
and as short-term capital gain if the shares are held for a shorter period. If
the optionee sells the stock for less than the option price, he or she will
recognize a capital loss equal to the difference between the sale price and
the option price. The loss will be a long-term capital loss if the shares are
held for more than one year prior to the sale and short-term capital loss if
the shares are held for a shorter period.
No taxable income is recognized by the optionee upon the grant of a
nonstatutory option. The optionee must recognize as ordinary income in the
year in which the option is exercised the amount by which the fair market
value of the purchased shares on the date of exercise exceeds the option price
(and the Company may be required to withhold an appropriate amount for tax
purposes). If the optionee is a person who is required to file reports
pursuant to Section 16(a) of the Exchange Act, then upon the exercise of an
option within six months from the date of grant no income will be recognized
by the optionee until six months have expired from the date the option was
granted, and the income then recognized will include any appreciation in the
value of the shares during the period between the date of exercise and the
date six months after the date of grant (unless the optionee makes an election
under Section 83(b) of the Code to have the difference between the exercise
price and fair market value on the date of exercise recognized as ordinary
income as of the time of exercise). The Company will be entitled to a business
expense deduction equal to the amount of ordinary income recognized by the
optionee, subject to the limitations of Section 162(m) of the Code. Any
additional gain or any loss recognized upon the subsequent disposition of the
purchased shares will be a capital gain or loss, and will be a long-term gain
or loss if the shares are held for more than one year.
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in May 1996, was approved by the
stockholders in June 1996, and will become effective upon the closing of this
Offering. The Purchase Plan authorizes the issuance of up to a total of
100,000 shares of Common Stock to participating employees.
All employees of the Company, including directors of the Company who are
employees, are eligible to participate in the Purchase Plan. Employees who
would immediately after the grant own 5% or more of the total combined voting
power or value of the stock of the Company or any subsidiary are not eligible
to participate. As of May 1, 1996, 17 of the Company's employees would have
been eligible to participate in the Purchase Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock
as follows: The employee may authorize an amount (a whole percentage from 1%
to 10% of such employee's regular pay) to be deducted by the Company from such
pay during the Offering Period. On the last day of the Offering Period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the
Purchase Plan, the option price is an amount equal to 85% of the fair market
value per share of the Common Stock on either the first day or the last day of
the Offering Period, whichever is lower. In no event may an employee purchase
in any one Offering Period a number of shares which is more than 15% of the
employee's annualized base pay divided by 85% of the market value of a share
of Common Stock on the commencement date of the Offering Period. The
Compensation Committee may, in its discretions, choose an Offering Period of
12 months or less for each of the Offerings and choose a different Offering
Period for each Offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's
rights under the Purchase Plan terminate upon voluntary withdrawal
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<PAGE>
from the Purchase Plan at any time or when such employee ceases employment for
any reason, except that upon termination of employment because of death, the
employee's beneficiary has certain rights to elect to exercise the option to
purchase the shares which the accumulated payroll deductions in the
participant's account would purchase at the date of death.
Federal Income Tax Consequences. The Purchase Plan is intended to be an
"Employee Stock Purchase Plan" within the meaning of Section 423 of the Code
which provides that the participant does not have to pay any federal income
tax upon enrolling in an offering under the Purchase Plan or upon purchasing
shares of the Common Stock at the end of an offering. The participant is,
however, required to pay federal income tax at the time he or she sells such
shares on the excess, if any, of the price at which he or she sells the shares
over the price he or she paid for them.
If the participant has owned the shares for more than one year and disposes
of them at least two years after the day the offering commenced, he will be
taxed as follows. If the sale of the shares is less than the price paid for
the shares under the Purchase Plan, the participant will incur a long-term
capital loss in an amount equal to the excess of the price paid over the sale
price. If the sale price is higher than the price paid under the Purchase
Plan, the participant will have to recognize ordinary income in an amount
equal to the lesser of (a) the excess of the market price of the shares on the
day the offering commenced over the price paid (in which case the balance of
the gain realized on sale will be treated as long-term capital gain) or (b)
the excess of the sale price over the price paid.
If the participant sells the shares before he or she has owned them for more
than one year or before the expiration of a two-year period commencing on the
day the offering period commenced, the participant will have to recognize
ordinary income on the amount of the excess of the purchase price paid over
the market price of the shares on the date of purchase, and the Company will
receive an expense deduction for the same amount, subject to the limitations
imposed by Section 162(m) of the Code. The participant will recognize a
capital gain or loss (long- or short-term, depending on the period he has
owned the shares) for the excess of the sale price over the market value on
the date of purchase.
Except as described in the preceding paragraph, the Company will not be
entitled to a tax deduction upon the purchase or sale of shares under the
Purchase Plan.
401(K) SAVINGS AND RETIREMENT PLAN
In 1995, the Company adopted a 401(k) Savings and Retirement Plan (the
"401(k) Plan"), a tax-qualified plan covering all of its employees who are at
least 21 years of age. Each employee may elect to reduce his or her current
compensation by up to 15%, subject to the statutory limit (a maximum of $9,500
in 1996) and have the amount of the reduction contributed to the 401(k) Plan.
The 401(k) Plan provides that the Company may, as determined from time to time
by the Board of Directors, provide a matching cash contribution. In addition,
the Company may contribute an additional amount to the 401(k) Plan, as
determined by the Board of Directors, which will be allocated based on the
proportion of the employee's compensation for the plan year to the aggregate
compensation for the plan year for all eligible employees.
All employee and Company contributions to the 401(k) Plan are fully vested
at all times.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1995 the members of the Company's Compensation Committee were Dr. Krauss,
Mr. Husain and Dr. Muller, none of whom are employees of the Company. Dr.
Krauss, who was both Chairperson and Secretary of the Company in 1995, is also
Chairperson of KBL Healthcare, Inc., a major stockholder of the Company, which
has received fees from the Company in each of the last three years. Mr.
Husain, a director of the Company, is a Vice President of Morgan Stanley & Co.
Incorporated, which is affiliated with certain major stockholders of the
Company. See "Certain Transactions".
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<PAGE>
CERTAIN TRANSACTIONS
Since 1993, the Company has engaged in the following transactions with the
following directors, officers and stockholders who beneficially own more than
5% of the outstanding Common Stock of the Company and affiliates of such
directors, officers and stockholders.
RELATED PARTY TRANSACTIONS
CONSULTING FEES AND PREFERRED STOCK ISSUANCE COSTS
In February 1993, the Company entered into a consulting and financial
advisory agreement with KBL Healthcare, Inc., the selling agent involved with
the issuance of the Company's Series A Preferred Stock. Dr. Krauss, the Chief
Executive Officer of the selling agent, is Chairperson of the Company's Board
of Directors. Total fees paid under this agreement during 1994 and 1993 were
approximately $41,000 and $63,000, respectively. In addition, in conjunction
with the Series A Preferred Stock issuance in 1993, the Company paid the
selling agent approximately $648,000 in commissions and expenses and warrants
to purchase 328,904 shares of Common Stock at an exercise price of $2.00 per
share were issued to the selling agent. The warrants contain a cashless
exercise provision whereby the warrant holder can surrender in-the-money
warrants in exchange for a net number of shares of Common Stock based on the
fair market value of the Common Stock at the time of exercise.
During 1995, the Company entered into an additional agreement with the
selling agent. Under this agreement, the Company obtained consulting and
financial advisory services in relation to the issuance of the Company's
Series B Preferred Stock. Total fees paid under this agreement during 1995
amounted to $87,500.
SALE OF SERIES B PREFERRED STOCK
In April 1995, the Company sold 1,546,612, 385,318 and 401,403 shares of
Series B Convertible Preferred Stock (convertible into 773,306, 192,659, and
200,702 of Common Stock, respectively) to Morgan Stanley Venture Capital Fund
II, L.P., Morgan Stanley Venture Capital Fund II, C.V. and Morgan Stanley
Venture Investors, L.P., respectively, at $1.50 per share, for aggregate
consideration of $3,500,000. Mr. Husain, a member of the Company's Board of
Directors, is a Vice President of Morgan Stanley & Co. Incorporated, an
affiliate of which is the managing general partner of such partnerships.
CONSULTING AND TECHNOLOGY AGREEMENT/LICENSE AGREEMENT
In February 1993, the Company entered into a consulting and technology
agreement with Dr. Cohen pursuant to which Dr. Cohen spends one day a week at
the Company working on the development and commercialization of the technology
licensed to the Company pursuant to the MIT License Agreements. This
agreement, which expires in February 1998, requires the Company to pay monthly
consulting fees of up to $12,500. Total payments made during 1995, 1994 and
1993 were approximately $100,000, $142,000 and $116,000, respectively. The
Company is also required to remit a royalty of 1% of net sales from products
and 7% of gross revenue from sublicenses derived by the Company from the
technologies licensed under the MIT License Agreements. In connection with
this agreement, a warrant to purchase 109,634 shares of Common Stock for $2.00
per share was issued to Dr. Cohen. During the term of the consulting
agreement, and for a period of up to two additional years following the
termination or expiration of this agreement, Dr. Cohen is obligated not to
compete with the Company so long as the Company makes continuing payments to
Dr. Cohen during such two year period.
In February 1993, the Company also entered into a license agreement with Dr.
Cohen, pursuant to which Dr. Cohen granted to the Company an exclusive license
to certain cardiac output monitoring technology developed by Dr. Cohen. The
Cohen License Agreement provides that the Company must
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<PAGE>
achieve certain milestones, which include raising equity capital, spending a
minimum of $200,000 in each two-year period during the term of the agreement
and conducting clinical trials. If such milestones are not achieved, Dr. Cohen
has the right to terminate the agreement. The Cohen License Agreement also
sets forth certain provisions relating to potential infringement of the patent
rights that allow, but do not require, either party to take action against
such infringement. The Company is required to pay Dr. Cohen a royalty based on
3% of net sales of products developed from such technology. If the Company
chooses to sublicense this technology to an unrelated party, the royalty will
be based on 20% of the gross revenue received from the unrelated party for
products developed from such technology. This technology is at an early stage
of development and it is uncertain when, if at all, the Company will seek to
commercialize this technology.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of May 1, 1996 (assuming the
conversion of all outstanding shares of Convertible Preferred Stock into an
aggregate of 4,455,708 shares of Common Stock) by (i) each person or entity
known to the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) each of the Company's directors, (iii) each of the Named Executive
Officers, and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED
NAME AND ADDRESS OF NUMBER OF SHARES ------------------------------
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) BEFORE OFFERING AFTER OFFERING
------------------- --------------------- --------------- --------------
<S> <C> <C> <C>
5% STOCKHOLDERS
Dr. Richard J. Cohen(3)... 1,362,134 17.5% 12.6%
Funds Managed by Invesco
Funds(4)................. 1,250,000 16.3 11.7
7800 East Union Avenue
Denver, CO 80237
Venture capital
partnerships affiliated
with
Morgan Stanley & Co.
Incorporated(5).......... 1,166,667 15.2 10.9
1221 Avenue of the
Americas
New York, NY 10020
Zachary C. Berk(6)........ 837,122 10.9 7.8
Marlene Krauss(6)......... 837,122 10.9 7.8
OTHER DIRECTORS AND NAMED
EXECUTIVE OFFICERS
Jeffrey M. Arnold(7)...... 407,998 5.1 3.7
Thomas V. Hennessey,
Jr. ..................... -- -- --
Paul Albrecht(8).......... 139,250 1.8 1.3
J. Alex Martin............ 15,000 * *
Robert T. Miragliuolo..... -- -- --
M. Fazle Husain(9)........ 1,166,667 15.2 10.9
David F. Muller(10)....... 16,666 * *
David F. Rollo(11)........ 16,666 * *
Rolf S. Stutz(12)......... 16,666 * *
All directors and
executive officers as a
group
(12 persons)(13)......... 3,978,169 51.8% 37.3%
</TABLE>
- --------
* Represents less than 1% of the outstanding Common Stock.
(1) The address for each director and officer of the Company is c/o Cambridge
Heart, Inc., 1 Oak Park Drive, Bedford, MA 01730.
(2) Each stockholder has sole voting and investment power with respect to the
shares listed, except as otherwise noted. Shares of Common Stock which an
individual or group has a right to acquire within the 60-day period
following May 1, 1996 pursuant to the exercise of options or warrants are
deemed to be outstanding for the purposes of computing the percentage
ownership of such individual or group, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person shown in the table.
(3) Includes 111,634 shares of Common Stock issuable to Dr. Cohen within 60
days of May 1, 1996 upon exercise of stock options and warrants.
(4) Includes 650,000 shares of Common Stock held by The Global Health
Sciences Fund and 600,000 shares of Common Stock held by The Invesco
Strategic Portfolios, Inc.
(5) Includes 773,306 shares of Common Stock held by Morgan Stanley Venture
Capital Fund II, L.P., 200,702 shares of Common Stock held by Morgan
Stanley Venture Investors, L.P. and 192,659 shares of Common Stock held
by Morgan Stanley Venture Capital Fund II, C.V.
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<PAGE>
(6) Dr. Berk and Dr. Krauss are married to each other. Includes 483,538
shares of Common Stock held by Dr. Krauss, 237,300 shares of Common Stock
held by Dr. Berk, and 116,284 shares of Common Stock held in trust for
the benefit of their children.
(7) Includes 316,835 shares of Common Stock issuable to Mr. Arnold within 60
days of May 1, 1996 upon exercise of stock options.
(8) Includes 45,000 shares of Common Stock issuable to Dr. Albrecht within 60
days of May 1, 1996 upon exercise of stock options.
(9) Includes 1,166,667 shares of Common Stock held by venture capital
partnerships affiliated with Morgan Stanley & Co. Incorporated. See note
(5). Mr. Husain is a Vice President of Morgan Stanley & Co. Incorporated.
(10) Includes 16,666 shares of Common Stock issuable to Dr. Muller within 60
days of May 1, 1996 upon exercise of stock options.
(11) Includes 8,333 shares of Common Stock issuable to Dr. Rollo within 60
days of May 1, 1996 upon exercise of stock options.
(12) Includes 16,666 shares of Common Stock issuable to Mr. Stutz within 60
days of May 1, 1996 upon exercise of stock options.
(13) Represents the shares referenced in footnotes (3) and (5)-(12).
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offering, the Company will be authorized to issue
25,000,000 shares of Common Stock, $.001 par value per share of which
10,663,871 will be issued and outstanding, and 2,000,000 shares of
undesignated Preferred Stock, $.001 par value per share, of which no shares
will be issued and outstanding.
COMMON STOCK
As of May 15, 1996 (after giving effect to the automatic conversion into
Common Stock of all outstanding shares of Preferred Stock upon the closing of
this Offering), there were 7,663,872 shares of Common Stock outstanding, held
of record by approximately 140 stockholders. Holders of Common Stock are
entitled to one vote for each share held on all matters submitted to a vote of
stockholders and do not have cumulative voting rights. Accordingly, holders of
a majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor,
subject to any preferential dividend rights of outstanding Preferred Stock.
Upon the liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive ratably the net assets of the Company
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding Preferred Stock. Holders of Common Stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares offered by the Company
in this Offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
WARRANTS
As of May 1, 1996, a total of 438,538 shares of Common Stock were issuable
upon exercise of outstanding warrants at an exercise price of $2.00 per share.
All of such warrants, unless exercised prior to May 1, 1996, will remain
outstanding after the closing of this Offering.
PREFERRED STOCK
Upon the closing of this Offering, the Company's Restated Certificate of
Incorporation will authorize the issuance of up to 2,000,000 shares of
Preferred Stock, $.001 par value per share. Under the terms of the Restated
Certificate of Incorporation, the Board of Directors is authorized, subject to
any limitations prescribed by law, without stockholder approval, to issue such
shares of Preferred Stock in one or more series. Each such series of Preferred
Stock shall have such rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be determined by the Board of
Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is
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<PAGE>
approved in a prescribed manner. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Subject to certain exceptions, an "interested
stockholder" is (i) a person who, together with affiliates and associates,
owns 15% or more of the corporation's voting stock or (ii) is an affiliate or
associate of the Company and was the owner, together with affiliates and
associates of 15% or more of the outstanding voting stock of the Company at
any time within the 3-year period prior to the date for determining whether
such person is "interested".
The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management--Executive Officers and
Directors". In addition, the Restated Certificate of Incorporation provides
that directors may be removed only for cause by the affirmative vote of the
holders of two-thirds of the shares of capital stock of the corporation
entitled to vote. Under the Restated Certificate of Incorporation, any vacancy
on the Board of Directors, however occurring, including a vacancy resulting
from an enlargement of the Board, may only be filled by vote of a majority of
the directors then in office. The classification of the Board of Directors and
the limitations on the removal of directors and filling of vacancies could
have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from acquiring, control of the Company.
The Restated Certification of Incorporation also provides that after the
closing of this Offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting
and may not be taken by written action in lieu of a meeting. The Restated
Certificate of Incorporation further provides that special meetings of the
stockholders may only be called by the President of the Company or by the
Board of Directors. Under the Company's By-Laws, as amended (the "By-Laws"),
in order for any matter to be considered "properly brought" before a meeting,
a stockholder must comply with certain requirements regarding advance notice
to the Company. The foregoing provisions could have the effect of delaying
until the next stockholders' meeting stockholder actions which are favored by
the holders of a majority of the outstanding voting securities of the Company.
These provisions may also discourage another person or entity from making a
tender offer for the Company's Common Stock, because such person or entity,
even if it acquired a majority of the outstanding voting securities of the
Company, would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders' meeting,
and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's Restated Certificate of Incorporation or By-
Laws, unless a corporation's Restated Certificate of Incorporation or By-Laws,
as the case may be, requires a greater percentage. The Restated Certificate of
Incorporation and the By-Laws require the affirmative vote of the holders of
at least 75% of the shares of capital stock of the Company issued and
outstanding and entitled to vote to amend or repeal any of the provisions
described in the prior two paragraphs.
The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, the Restated Certificate of Incorporation
contains provisions to indemnify the Company's directors and officers to the
fullest extent permitted by the General Corporation Law of Delaware. The
Company believes that these provisions will assist the Company in attracting
and retaining qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering there will be 10,663,871 shares of Common
Stock of the Company outstanding. There were also 1,062,037 shares covered by
vested options and warrants outstanding at May 15, 1996, which are not
considered to be outstanding shares. Of the outstanding shares, 3,225,028
shares, including the 3,000,000 shares of Common Stock sold in this Offering,
will be immediately eligible for resale in the public market without
restriction under the Securities Act, except that any shares purchased in this
Offering by affiliates of the Company ("Affiliates"), as that term is defined
in Rule 144 under the Securities Act ("Rule 144"), may generally only be
resold in compliance with applicable provisions of Rule 144. On October 25,
1996, an additional 1,832,864 shares of Common Stock, which are not subject to
lock-up agreements with the Underwriters, will be eligible for resale in the
public market in reliance on Rule 144(k) of the Securities Act. Beginning
approximately 90 days after the date of this Prospectus, approximately
4,930,147 additional shares of Common Stock (including approximately 542,960
shares covered by options exercisable within the 90-day period following the
date of this Prospectus) will become eligible for immediate resale in the
public market, subject to compliance as to certain of such shares with
applicable provisions of Rules 144 and 701.
The Company, the executive officers and directors of the Company, and
certain security holders, have agreed pursuant to certain agreements that they
will not, without the prior written consent of the Representatives, offer,
sell or otherwise dispose of the shares of Common Stock beneficially owned by
them for a period of 180 days from the date of the Underwriting Agreement. The
shares subject to the lock-up agreements include approximately of the
shares of Common Stock that would otherwise have become immediately eligible
for resale in the public market upon completion of this Offering,
approximately of the shares of Common Stock that would otherwise have
become eligible for resale in the public market on October 25, 1996 and
approximately of the shares of Common Stock (including approximately
shares of Common Stock covered by options exercisable within the 90-day
period following the date of the Underwriting Agreement) that would otherwise
have become eligible for resale in the public market beginning approximately
90 days after the date of the Underwriting Agreement, subject to compliance as
to certain of such shares with the applicable provisions of Rules 144 and 701.
In general, under Rule 144 as currently in effect, beginning approximately
90 days after the effective date of the Registration Statement of which this
Prospectus is a part, a stockholder, including an Affiliate, who has
beneficially owned his or her restricted securities (as that term is defined
in Rule 144) for at least two years from the later of the date such securities
were acquired from the Company or (if applicable) the date they were acquired
from an Affiliate is entitled to sell, within any three-month period, a number
of such shares that does not exceed the greater of 1% of the then outstanding
shares of Common Stock (approximately 106,639 immediately after this Offering)
or the average weekly trading volume in the Common Stock during the four
calendar weeks preceding the date on which notice of such sale was filed under
Rule 144, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition,
under Rule 144(k), if a period of at least three years has elapsed between the
later of the date restricted securities were acquired from the Company or (if
applicable) the date they were acquired from an Affiliate of the Company, a
stockholder who is not an Affiliate of the Company at the time of sale and has
not been an Affiliate of the Company for at least three months prior to the
sale is entitled to sell the shares immediately without compliance with the
foregoing requirements under Rule 144. The Securities and Exchange Commission
has proposed an amendment to Rule 144 which would reduce the holding period
required for shares subject to Rule 144 to become eligible for sale in the
public market from two years to one year, and from three years to two years in
the case of Rule 144(k).
Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted under
the 1993 Option Plan) are also restricted securities and, beginning 90 days
after the effective date of the Registration Statement of which this
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<PAGE>
Prospectus is a part, may be sold by stockholders other than an Affiliate of
the Company subject only to the manner of sale provisions of Rule 144 and by
an Affiliate under Rule 144 without compliance with its two-year holding
period requirement.
At the completion of this Offering, certain persons and entities (the
"Rightholders"), will be entitled to certain rights with respect to the
registration under the Securities Act of a total of approximately 5,675,205
shares of Common Stock (the "Registrable Shares"), including 438,539 shares of
Common Stock that may be acquired pursuant to the exercise of outstanding
warrants (assuming an initial public offering price of $12.00 per share),
under the terms of agreements among the Company and the Rightholders (the
"Registration Agreements") and various outstanding warrants (the "Warrants",
and together with the Registration Agreement, the "Registration Instruments").
Pursuant to the Registration Instruments, certain Rightholders are entitled,
in the event the Company proposes to register any of its securities under the
Securities Act at any time, with certain exceptions, to include Registrable
Shares with respect to 5,675,205 shares of Common Stock in such registration,
subject to the right of the managing underwriter of any underwritten offering
to exclude from such registration for marketing reasons some or all of such
Registrable Shares. Pursuant to the Registration Instruments, certain
Rightholders have the right under certain circumstances to require the Company
to prepare and file registration statements under the Securities Act with
respect to a total of approximately 5,675,205 Registrable Shares, including
shares of Common Stock that may be acquired upon the exercise of outstanding
warrants, and the Company is required to use its best efforts to effect such
registration, subject to certain conditions and limitations. The Company is
generally required to bear the expense of all such registrations.
Prior to this Offering, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
of the Common Stock prevailing from time to time. The Company is unable to
estimate the number of shares that may be sold in the public market pursuant
to Rule 144, since this will depend on the market price of the Common Stock,
the personal circumstances of the sellers and other factors. Nevertheless,
sales of significant amounts of the Common Stock of the Company in the public
market could adversely affect the market price of the Company's Common Stock
and could impair the Company's ability to raise capital through an offering of
its equity securities.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hale and Dorr, Boston, Massachusetts and for the
Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The financial statements as of December 31, 1994 and 1995 and for each of
the three years in the period ended December 31, 1995 and for the period from
inception (January 16, 1990) through December 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, to which Registration Statement
reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement and the exhibits thereto may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
55
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Balance Sheet at December 31, 1994 and 1995 and March 31, 1996
(unaudited).............................................................. F-3
Statement of Operations for the three years ended December 31, 1995, for
the period from inception (January 16, 1990) through December 31, 1995,
for the three months ended March 31, 1995 and 1996 (unaudited) and for
the period from inception (January 16, 1990) through March 31, 1996
(unaudited).............................................................. F-4
Statement of Changes in Stockholders' Equity (Deficit) for the period from
inception (January 16, 1990) through December 31, 1995 and for the three
months ended March 31, 1996 (unaudited).................................. F-5
Statement of Cash Flows for the three years ended December 31, 1995, for
the period from inception (January 16, 1990) through December 31, 1995,
for the three months ended March 31, 1995 and 1996 (unaudited) and for
the period from inception (January 16, 1990) through March 31, 1996
(unaudited).............................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Cambridge Heart, Inc.
The 1-for-2 reverse stock split described in Note 5 to the financial
statements has not been consummated at May 30, 1996. When it has been
consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related
statements of operations, of changes in stockholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Cambridge Heart, Inc. (a development stage enterprise) at
December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31,
1995, and for the period from inception (January 16, 1990) through
December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above."
Price Waterhouse LLP
Boston, Massachusetts
March 24, 1996
F-2
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 3,329,490 $ 3,948,147 $ 3,026,938
Accounts receivable................... -- -- 56,916
Inventory............................. -- 118,865 205,597
Prepaid expenses and other current
assets............................... 18,210 48,370 42,123
----------- ----------- -----------
Total current assets................ 3,347,700 4,115,382 3,331,574
Fixed assets, net....................... 73,306 161,978 191,456
Other assets............................ -- -- 12,791
----------- ----------- -----------
$ 3,421,006 $ 4,277,360 $ 3,535,821
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 56,356 $ 108,471 $ 74,267
Accrued expenses...................... 106,977 126,738 76,869
License fees payable.................. 102,892 31,212 31,212
----------- ----------- -----------
Total current liabilities........... 266,225 266,421 182,348
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Series B convertible preferred stock,
$0.001 par value; 2,500,000 shares
authorized; 2,333,333 shares issued
and outstanding at December 31, 1995
and March 31, 1996 (liquidating
preference of $3,500,000)............ -- 2,333 2,333
Series A convertible preferred stock,
$0.001 par value; 6,900,000 shares
authorized; 6,578,083 shares issued
and outstanding (liquidating
preference of $6,578,083)............ 6,578 6,578 6,578
Common stock, $0.001 par value;
20,000,000 shares authorized;
3,030,833, 3,163,163 and 3,208,163
shares issued and outstanding at
December 31, 1994 and 1995 and March
31, 1996, respectively............... 3,031 3,163 3,208
Additional paid-in-capital............ 5,729,020 9,079,671 9,517,376
Deficit accumulated during the
development stage.................... (2,583,848) (5,080,806) (5,747,272)
----------- ----------- -----------
3,154,781 4,010,939 3,782,223
Less: deferred compensation........... -- -- (428,750)
----------- ----------- -----------
Total stockholders' equity.......... 3,154,781 4,010,939 3,353,473
----------- ----------- -----------
Commitments (Notes 10 and 11)
----------- ----------- -----------
$ 3,421,006 $ 4,277,360 $ 3,535,821
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(JANUARY 16, (JANUARY 16,
1990) THREE MONTHS ENDED 1990)
YEAR ENDED DECEMBER 31, THROUGH MARCH 31, THROUGH
----------------------------------- DECEMBER 31, -------------------- MARCH 31,
1993 1994 1995 1995 1995 1996 1996
--------- ----------- ----------- ------------ --------- --------- ------------
(UNAUDITED)
----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Product revenue......... $ -- $ -- $ 68,047 $ 68,047 $ -- $ 55,220 $ 123,267
Revenue from research
and option agreement... -- 25,000 -- 25,000 -- -- 25,000
--------- ----------- ----------- ----------- --------- --------- -----------
Total revenue.......... -- 25,000 68,047 93,047 -- 55,220 148,267
Cost of goods sold...... -- -- 141,312 141,312 -- 49,037 190,349
--------- ----------- ----------- ----------- --------- --------- -----------
-- 25,000 (73,265) (48,265) -- 6,183 (42,082)
Costs and expenses:
Research and
development........... 588,941 1,123,752 1,559,915 3,286,105 413,905 352,891 3,638,996
Selling, general and
administrative........ 321,660 723,918 1,109,724 2,183,693 190,733 366,312 2,550,005
--------- ----------- ----------- ----------- --------- --------- -----------
Loss from operations... (910,601) (1,822,670) (2,742,904) (5,518,063) (604,638) (713,020) (6,231,083)
Interest expense........ (5,620) -- -- (5,620) -- -- (5,620)
Interest income......... 32,974 163,957 245,946 442,877 43,584 46,554 489,431
--------- ----------- ----------- ----------- --------- --------- -----------
Net loss................ $(883,247) $(1,658,713) $(2,496,958) $(5,080,806) $(561,054) $(666,466) $(5,747,272)
========= =========== =========== =========== ========= ========= ===========
Pro forma net loss per
share (unaudited)...... $ (.33) $ (.08)
=========== =========
Pro forma weighted
average common and
common equivalent
shares outstanding
(unaudited)............ 7,564,108 7,938,872
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES B SERIES A
CONVERTIBLE CONVERTIBLE DEFICIT
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ACCUMULATED
------------------- ------------------- ------------------- ADDITIONAL DURING THE
NUMBER OF NUMBER OF NUMBER OF PAID-IN DEVELOPMENT DEFERRED
SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE CAPITAL STAGE COMPENSATION
--------- --------- --------- --------- --------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock in
January 1990.... -- $ -- -- $ -- 50 $ 1 $ -- $ -- $ --
--------- ------ --------- ------ --------- ------ ---------- ----------- ---------
Balance at
December 31,
1990 and 1991... 50 1
Thirty one
thousand-for-one
stock split and
capital
contribution in
June 1992....... 1,549,950 1,549 1,550
Issuance of
common stock in
June 1992....... 1,250,000 1,250 1,250
Net loss........ (41,888)
--------- ------ --------- ------ --------- ------ ---------- ----------- ---------
Balance at
December 31,
1992............ -- -- -- -- 2,800,000 2,800 2,800 (41,888) --
Issuance of
common stock in
February 1993... 20,000 20 20
Issuance of
Series A
convertible
preferred stock
during September
to December
1993, net of
issuance costs
of $881,306..... 6,478,083 6,478 5,590,299
Conversion of
$100,000 of
notes payable to
Series A
convertible
preferred stock
in September
1993............ 100,000 100 99,900
Issuance of
common stock in
December 1993
through grant
and exercise of
stock purchase
right........... 180,000 180 35,820
Net loss........ (883,247)
--------- ------ --------- ------ --------- ------ ---------- ----------- ---------
Balance at
December 31,
1993............ -- -- 6,578,083 6,578 3,000,000 3,000 5,728,839 (925,135) --
Issuance of
common stock
through exercise
of stock
options......... 30,833 31 181
Net loss........ (1,658,713)
--------- ------ --------- ------ --------- ------ ---------- ----------- ---------
Balance at
December 31,
1994............ -- -- 6,578,083 6,578 3,030,833 3,031 5,729,020 (2,583,848) --
Issuance of
Series B
convertible
preferred stock
in April 1995,
net of issuance
costs of
$149,487........ 2,333,333 2,333 3,348,180
Issuance of
common stock
through exercise
of stock
options......... 132,330 132 2,471
Net loss........ (2,496,958)
--------- ------ --------- ------ --------- ------ ---------- ----------- ---------
Balance at
December 31,
1995............ 2,333,333 2,333 6,578,083 6,578 3,163,163 3,163 9,079,671 (5,080,806) --
Issuance of
common stock
through exercise
of stock options
(unaudited)..... 45,000 45 8,955
Deferred
compensation
related to
common stock
options granted
(unaudited)..... 428,750 (428,750)
Net loss
(unaudited)..... (666,466)
--------- ------ --------- ------ --------- ------ ---------- ----------- ---------
Balance at March
31, 1996
(unaudited)..... 2,333,333 $2,333 6,578,083 $6,578 3,208,163 $3,208 $9,517,376 $(5,747,272) $(428,750)
========= ====== ========= ====== ========= ====== ========== =========== =========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Issuance of
common stock in
January 1990.... $ 1
----------------
Balance at
December 31,
1990 and 1991... 1
Thirty one
thousand-for-one
stock split and
capital
contribution in
June 1992....... 3,099
Issuance of
common stock in
June 1992....... 2,500
Net loss........ (41,888)
----------------
Balance at
December 31,
1992............ (36,288)
Issuance of
common stock in
February 1993... 40
Issuance of
Series A
convertible
preferred stock
during September
to December
1993, net of
issuance costs
of $881,306..... 5,596,777
Conversion of
$100,000 of
notes payable to
Series A
convertible
preferred stock
in September
1993............ 100,000
Issuance of
common stock in
December 1993
through grant
and exercise of
stock purchase
right........... 36,000
Net loss........ (883,247)
----------------
Balance at
December 31,
1993............ 4,813,282
Issuance of
common stock
through exercise
of stock
options......... 212
Net loss........ (1,658,713)
----------------
Balance at
December 31,
1994............ 3,154,781
Issuance of
Series B
convertible
preferred stock
in April 1995,
net of issuance
costs of
$149,487........ 3,350,513
Issuance of
common stock
through exercise
of stock
options......... 2,603
Net loss........ (2,496,958)
----------------
Balance at
December 31,
1995............ 4,010,939
Issuance of
common stock
through exercise
of stock options
(unaudited)..... 9,000
Deferred
compensation
related to
common stock
options granted
(unaudited).....
Net loss
(unaudited)..... (666,466)
----------------
Balance at March
31, 1996
(unaudited)..... $ 3,353,473
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(JANUARY 16, (JANUARY 16,
1990) THREE MONTHS ENDED 1990)
YEAR ENDED DECEMBER 31, THROUGH MARCH 31, THROUGH
------------------------------------ DECEMBER 31, ---------------------- MARCH 31,
1993 1994 1995 1995 1995 1996 1996
---------- ----------- ----------- ------------ ---------- ---------- ------------
(UNAUDITED)
------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $ (883,247) $(1,658,713) $(2,496,958) $(5,080,806) $ (561,054) $ (666,466) $(5,747,272)
Adjustments to
reconcile net loss to
net cash used for
operating activities:
Issuance of common
stock purchase right
to a licensor........ 35,640 -- -- 35,640 -- -- 35,640
Depreciation.......... 2,732 12,786 30,392 45,910 5,473 12,316 58,226
Changes in assets and
liabilities:
Increase in accounts
receivable........... -- -- -- -- -- (56,916) (56,916)
Increase in
inventory............ -- -- (118,865) (118,865) -- (86,732) (205,597)
(Increase) decrease in
prepaid expenses and
other current
assets............... (2,200) (16,010) (30,160) (48,370) (1,927) 6,247 (42,123)
(Increase) decrease in
other assets......... (2,800) 2,800 -- -- -- (12,791) (12,791)
Increase (decrease) in
accounts payable and
accrued expenses..... 53,509 107,027 71,876 235,209 (58,449) (84,073) 151,136
Increase (decrease) in
license fees
payable.............. 174,572 (71,680) (71,680) 31,212 -- -- 31,212
Decrease in due to
related party........ (18,635) (15,878) -- -- -- -- --
---------- ----------- ----------- ----------- ---------- ---------- -----------
Net cash used for
operating
activities.......... (640,429) (1,639,668) (2,615,395) (4,900,070) (615,957) (888,415) (5,788,485)
---------- ----------- ----------- ----------- ---------- ---------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of fixed
assets................ (28,540) (60,284) (119,064) (207,888) (17,862) (41,794) (249,682)
---------- ----------- ----------- ----------- ---------- ---------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of notes payable...... 100,000 -- -- 100,000 -- -- 100,000
Proceeds from issuance
of common stock....... 400 212 2,603 5,715 1,824 9,000 14,715
Proceeds from capital
contribution.......... -- -- -- 3,100 -- -- 3,100
Proceeds from issuance
of Series A preferred
stock, net of issuance
costs................. 5,596,777 -- -- 5,596,777 -- -- 5,596,777
Proceeds from issuance
of Series B preferred
stock, net of issuance
costs................. -- -- 3,350,513 3,350,513 -- -- 3,350,513
---------- ----------- ----------- ----------- ---------- ---------- -----------
Net cash provided by
financing
activities.......... 5,697,177 212 3,353,116 9,056,105 1,824 9,000 9,065,105
---------- ----------- ----------- ----------- ---------- ---------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 5,028,208 (1,699,740) 618,657 3,948,147 (631,995) (921,209) 3,026,938
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD... 1,022 5,029,230 3,329,490 -- 3,329,490 3,948,147 --
---------- ----------- ----------- ----------- ---------- ---------- -----------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD................ $5,029,230 $ 3,329,490 $ 3,948,147 $ 3,948,147 $2,697,495 $3,026,938 $ 3,026,938
========== =========== =========== =========== ========== ========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH FINANCING
ACTIVITIES:
In September 1993, 100,000 shares of Series A Preferred Stock were issued upon
conversion of $100,000 in notes payable (Note 5). Interest of $5,620 was paid
on these notes in 1993 prior to their conversion. Total interest paid during
the period from inception (January 16, 1990) through December 31, 1995 was
$5,620.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Cambridge Heart, Inc. (the "Company") was incorporated in Delaware on
January 16, 1990 and is engaged in the research, development and
commercialization of products for the non-invasive diagnosis of cardiac
disease. The Company intends to sell its products primarily to hospitals,
research institutions and cardiovascular specialists.
During the period from inception (January 16, 1990) through December 31,
1995, the Company devoted substantially all of its efforts to business
planning, raising financing, recruiting personnel, research and development
and obtaining regulatory approval for its products. Although the Company
commenced its planned principal activities and began selling its products in
1995, it has not generated significant revenue therefrom. Accordingly, the
Company is considered to be in the development stage, as defined in Statement
of Financial Accounting Standards No. 7, at December 31, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed by the Company in the preparation
of its financial statements are as follows:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. The Company
invests its excess cash primarily in money market accounts and short-term
commercial paper of companies with strong credit ratings and in diversified
industries. Accordingly, these investments are subject to minimal credit and
market risk. The investments held at December 31, 1995 are classified as held
to maturity, and all mature within thirty-five days of December 31, 1995.
These investments have been recorded at amortized cost, which approximates
fair market value. No realized or unrealized gains or losses have been
recognized.
INVENTORIES
Inventories, consisting primarily of purchased components, are stated at
the lower of cost or market. Cost is determined using the first-in, first-out
(FIFO) method.
FIXED ASSETS
Equipment, furniture and sales display items are stated at cost, less
accumulated depreciation. Depreciation is provided using the straight-line
method based on estimated useful lives. Repair and maintenance costs are
expensed as incurred.
REVENUE RECOGNITION
Revenue is recognized upon shipment of goods. Revenue from a research and
option arrangement is recognized pursuant to the agreement as the work is
performed.
RESEARCH AND DEVELOPMENT
Research, engineering and product development costs are expensed as
incurred. Software development costs that would otherwise be capitalizable
under Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," have
not been material to date.
F-7
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this method, deferred tax liabilities
and assets are recognized for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of
assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingencies at December 31, 1994 and 1995, and the reported
amounts of revenues and expenses during the three years in the period ended
December 31, 1995 and for the period from inception (January 16, 1990)
through December 31, 1995. Actual results could differ from these estimates.
UNAUDITED PRO FORMA NET LOSS PER SHARE
Unaudited pro forma net loss per share is determined by dividing net loss
by the weighted average number of common shares and common share equivalents
outstanding during the period. Common share equivalents, comprised of common
stock options and warrants and convertible preferred stock, have been
excluded from the calculation as their effect is anti-dilutive, except that,
pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common share equivalents issued and common stock sold at prices below the
offering price in the twelve months preceding the anticipated public offering
have been included in the calculation as if outstanding for all periods
presented.
As described in Note 5, conversion of all convertible preferred stock will
occur upon the closing of a qualified public offering of the Company's common
stock. The unaudited pro forma net loss per share information included in the
accompanying statement of operations for the year ended December 31, 1995 and
for the three months ended March 31, 1996 reflects the impact on unaudited
pro forma net loss per share of such conversion as of the beginning of each
period or date of issuance, if later, using the if-converted method.
Historical net loss per share has not been presented on the basis that it
is irrelevant due to the significant change in the Company's capital
structure and resultant earnings or loss per share which will result upon
conversion of the convertible preferred stock.
UNAUDITED INTERIM FINANCIAL DATA
The interim financial data as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 and for the period from inception (January 16,
1990) through March 31, 1996 are unaudited; however, in the opinion of
management, the interim financial data include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
the results of operations for these interim periods. The interim financial
data are not necessarily indicative of the results of operations for a full
fiscal year.
F-8
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
RECENTLY ENACTED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation." The Company has elected to adopt this standard in 1996 through
footnote disclosure only.
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31,
LIFE ----------------
(YEARS) 1994 1995
--------- ------- --------
<S> <C> <C> <C>
Computer equipment............................... 5 $53,566 $125,062
Office furniture................................. 7 12,381 18,095
Sales display equipment.......................... 3 22,877 64,731
------- --------
88,824 207,888
Less--accumulated depreciation................... 15,518 45,910
------- --------
$73,306 $161,978
======= ========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
-------- --------
<S> <C> <C>
Accrued bonus.............................................. $ 58,333 $ 66,540
Accrued other.............................................. 48,644 60,198
-------- --------
$106,977 $126,738
======== ========
</TABLE>
5. STOCKHOLDERS' EQUITY (DEFICIT)
REVERSE COMMON STOCK SPLIT
On May 29, 1996, the Board of Directors authorized a 1-for-2 reverse stock
split of the Company's common stock which will become effective prior to the
closing date of the Company's initial public offering. All shares of common
stock, common stock options and warrants, preferred stock conversion ratios
and per share amounts included in the accompanying financial statements have
been adjusted to give retroactive effect to the reverse stock split for all
periods presented.
CONVERTIBLE PREFERRED STOCK
The Company has authorized 10,400,000 shares of preferred stock, of which
6,900,000 shares have been designated as Series A convertible preferred stock
("Series A Preferred Stock") and 2,500,000 shares have been designated as
Series B convertible preferred stock ("Series B Preferred Stock"). The
remaining authorized shares have not been designated. The preferred stock has
the following characteristics:
F-9
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
Conversion
Each share of preferred stock is convertible at any time at the option of
the holder into shares of common stock pursuant to a ratio of one share of
common stock for two shares of preferred stock, subject to certain stock
split and stock dividend adjustments. In addition, the conversion ratio is
subject to adjustment, as defined in the respective agreements, in the event
that the Company issues common stock at a per share price less than $3.00 and
$2.00 per share for the Series B Preferred Stock and the Series A Preferred
Stock, respectively. All preferred stock will automatically convert to common
stock upon the earlier of i) the closing of a public offering of the
Company's common stock involving aggregate proceeds of at least $10,000,000
and a per share price of not less than $6.00, or ii) the consent of the
holders of at least 51% of the then outstanding shares of preferred stock.
At December 31, 1995, the Company has reserved 1,166,667 and 3,289,041
shares of common stock for issuance upon the conversion of the Series B
Preferred Stock and the Series A Preferred Stock, respectively.
Dividends
Dividends on the preferred stock are payable prior and in preference to any
declaration or payment of any dividend on the common stock of the Company
when, as and if declared by the Board of Directors of the Company. Through
December 31, 1995 and March 31, 1996, no dividends have been declared or paid
by the Company.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the affairs
of the Company, the holders of the Series B Preferred Stock will be entitled
to receive in preference to the holders of the Series A Preferred Stock and
the common stock an amount per share equal to $1.50. Subsequent to the
repayment of the holders of the Series B Preferred Stock, the holders of the
Series A Preferred Stock will be entitled to receive in preference to the
holders of the common stock an amount per share equal to $1.00.
Voting Rights
Each holder of preferred stock is entitled to the number of votes equal to
the number of shares of common stock into which such holder's shares are
convertible at the date such vote is taken.
CONVERSION OF NOTES PAYABLE
During 1993, the Company issued convertible notes payable totaling $100,000
to common stockholders. These notes bore interest at 8% per annum. The
principal amount of these borrowings were converted into 100,000 shares of
Series A Preferred Stock in September 1993.
WARRANTS
In connection with the Series A Preferred Stock issuance, warrants to
purchase 328,904 shares of common stock were issued to the Company's selling
agent, a related party (Note 11). The warrants were issued with an exercise
price of $2.00 per share and expire in September 1998. The warrants contain a
cashless exercise provision whereby the warrant holder can surrender in-the-
money warrants in exchange for a net number of shares of Common Stock based
on the fair maket value of the Common Stock at the date of exercise. At
December 31, 1995, the Company has reserved 328,904 shares of common stock
for issuance upon the exercise of these warrants.
F-10
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
In addition, warrants to purchase 109,634 shares of common stock were
issued in February 1993 to a related party who provides consulting services
to the Company (Note 11). These warrants were issued with an exercise price
of $2.00 per share and expire on September 24, 1998. At December 31, 1995,
the Company has reserved 109,634 shares of common stock for issuance upon the
exercise of these warrants.
The value of the above warrants at the time of issuance was estimated by
management and determined not to be material to the Company's results of
operations and financial position.
STOCK RESTRICTIONS
During 1995, the Company entered into amended agreements with the holders
of all issued shares of common stock, 2,500,000 shares of Series A Preferred
Stock and 2,333,333 shares of Series B Preferred Stock, under which the
Company retains the right of first refusal to purchase any such shares
offered for sale. These agreements terminate upon the earlier of the closing
of a public offering of the Company's common stock involving aggregate
proceeds of at least $10,000,000 and a per share price of not less than
$6.00, such time as the holders of the Series A Preferred Stock hold fewer
than 800,000 shares of Series A Preferred Stock and/or common stock issued on
conversion thereof, or such time as the holders of the Series B Preferred
Stock hold fewer than 746,000 shares of Series B Preferred Stock and/or
common stock issued on conversion thereof.
STOCK PURCHASE RIGHT
In February 1993, the Company entered into an option agreement with a third
party giving the Company an option to enter into certain license agreements.
In connection with the option agreement, a right to purchase 180,000 shares
of the Company's common stock at a price of $0.002 per share was granted to
the third party. The right became exercisable immediately when the Company
entered into such license agreements in September 1993. The estimated fair
value of this right, $35,640, was expensed and recorded as additional paid-
in-capital. The right was exercised, and shares issued, in December 1993.
NEWLY AUTHORIZED COMMON AND PREFERRED STOCK
On May 29, 1996, the Company's Board of Directors increased, subject to
stockholders approval, the number of authorized shares of the Company's
$0.001 par value common stock to 25,000,000 and authorized an additional
2,000,000 shares of the Company's $0.001 par value preferred stock. The newly
authorized preferred stock may be issued at the discretion of the Board of
Directors of the Company (without stockholder approval) with such
designations, rights and preferences as the Board of Directors may determine
from time to time. This preferred stock may have dividend, liquidation,
redemption, conversion, voting or other rights which may be more expansive
than the rights of the holders of the common stock.
F-11
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. STOCK PLANS
1993 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
During 1993, the Company adopted the 1993 Incentive and Non-Qualified Stock
Option Plan (the "1993 Plan"). The 1993 Plan provides for the granting of
incentive and non-qualified stock options to management, other key employees,
consultants and directors of the Company. The total number of shares of
common stock that may be issued pursuant to the exercise of options granted
under the 1993 Plan is 1,688,663. Incentive stock options may not be granted
at less than fair market value of the Company's common stock at the date of
grant and for a term not to exceed ten years. For holders of more than 10% of
the Company's total combined voting power of all classes of stock, incentive
stock options may not be granted at less than 110% of the fair market value
of the Company's common stock at the date of grant and for a term not to
exceed five years. The exercise price under each non-qualified stock option
shall be specified by the stock option committee, but shall in no case be
less than the par value of the common stock subject to the non-qualified
stock option.
A summary of plan activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Granted in 1993 and outstanding at December 31,
1993............................................. 1,016,162 $.002-2.00
Granted......................................... 578,125 .02-2.00
Exercised....................................... (30,833) .002- .02
Cancelled....................................... (530,625) .002
---------
Outstanding at December 31, 1994.................. 1,032,829 .002-2.00
Granted......................................... 396,500 .20-1.00
Exercised....................................... (132,330) .002- .20
Cancelled....................................... (12,500) .20
---------
Outstanding at December 31, 1995.................. 1,284,499 .002-2.00
Granted (unaudited)............................. 80,000 1.00-4.00
Exercised (unaudited)........................... (45,000) .20
Cancelled (unaudited)........................... -- --
---------
Outstanding at March 31, 1996 (unaudited)......... 1,319,499 $.002-4.00
=========
Exercisable at December 31, 1995.................. 365,741
=========
</TABLE>
At December 31, 1995, 1,480,500 shares of common stock are reserved for
issuance upon exercise of the options issued under the 1993 Plan.
On March 18 and 25, 1996, the Company granted stock options to purchase
8,750 and 56,250 shares of its common stock, respectively, at exercise prices
of $4.00 and $1.00 per share, respectively, to certain employees. The Company
has recorded deferred compensation of $428,750, representing the difference
between the estimated fair market value of the common stock on the date of
grant ($8.00) and the exercise price. Deferred compensation related to these
options is recorded as a reduction of stockholders' equity and will be
amortized ratably over the option vesting period of five years.
F-12
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. STOCK PLANS--(CONTINUED)
1996 EQUITY INCENTIVE PLAN
On May 29, 1996, the Board of Directors authorized, subject to stockholder
approval, the 1996 Equity Incentive Plan (the "Incentive Plan"). The
Incentive Plan provides for the issuance of up to 1,000,000 shares of the
Company's common stock to eligible employees, officers, directors,
consultants and advisors of the Company. Under the Incentive Plan, the Board
of Directors may award incentive and non-qualified stock options, stock
appreciation rights, performance shares and restricted and unrestricted
stock.
Incentive stock options may not be granted at less than fair market value
of the Company's common stock at the date of grant and for a term not to
exceed ten years. For holders of more than 10% of the Company's total
combined voting power of all classes of stock, incentive stock options may
not be granted at less than 110% of the fair market value of the Company's
common stock at the date of grant and for a term not to exceed five years.
The exercise price under each non-qualified stock option shall be specified
by the stock option committee, but shall in no case be less than the par
value of the common stock subject to the non-qualified stock option. Grants
of stock appreciation rights, performance shares, restricted stock and
unrestricted stock may be made at the discretion of the Board of Directors
with terms to be defined therein except that the exercise and transfer of
stock appreciation rights granted in tandem with stock options is limited by
the terms of the related options.
1996 DIRECTOR OPTION PLAN
On May 29, 1996, the Board of Directors authorized, subject to stockholder
approval, the issuance of up to 100,000 shares of the Company's common stock
pursuant to its 1996 Director Option Plan (the "Director Plan"). Under the
Director Plan, outside directors of the Company who are not otherwise
affiliated with the Company are entitled to receive options to purchase
10,000 shares of common stock upon their initial election to the Board of
Directors. In addition, three existing outside directors will be granted
options to purchase 10,000 shares of common stock upon completion of the
Company's initial public offering. All option grants made under the Director
Plan have exercise prices equal to the fair market value of the Company's
common stock on the date of grant, and will vest in three annual installments
on the anniversary date of the grant. Director options will become
immediately exercisable upon the occurrence of a change in control (as
defined in the Director Plan).
1996 EMPLOYEE STOCK PURCHASE PLAN
On May 29, 1996, the Board of Directors authorized, subject to stockholder
approval, the 1996 Employee Stock Purchase Plan (the "Purchase Plan"). The
Purchase Plan provides for the issuance of up to 100,000 shares of the
Company's common stock to eligible employees. Under the Purchase Plan, the
Company is authorized to make one or more offerings during which employees
may purchase shares of common stock through payroll deductions made over the
term of the offering. The term of individual offerings, which are set by the
Board of Directors, may be for periods of twelve months or less and may be
different for each offering. The per-share purchase price at the end of each
offering is equal to 85% of the fair market value of the common stock at the
beginning or end of the offering period (as defined by the Purchase Plan),
whichever is lower. The first offering period will commence upon completion
of the Company's initial public offering
F-13
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. RESEARCH AND OPTION AGREEMENT
In April 1994, the Company entered into a research and option agreement with
a third party whereby the third party has agreed to fund $50,000 for certain
research and development activities. Under this agreement, which has multiple
phases to be perfomed by both the Company and the third party, the third party
has the option to obtain an exclusive or non-exclusive license to sell
products using technology developed by the Company, at which time the third
party would be obligated to pay royalties to the Company on sales of the
related products. Royalty rates would range from .375% to .75% of net sales of
the related products (depending upon whether the license is non-exclusive or
exclusive, respectively) with various minimum and maximum amounts. Amounts
received relating to this agreement have been included as revenue in the
statement of operations and the related costs have been included in research
and development expense. This agreement may be terminated by the third party
at any time.
8. INCOME TAXES
The income tax benefit consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------
1993 1994 1995
--------- --------- -----------
<S> <C> <C> <C>
Income tax benefit:
Federal............................. $ 321,000 $ 646,000 $ 880,000
State............................... 62,000 112,000 162,000
--------- --------- -----------
383,000 758,000 1,042,000
Deferred tax asset valuation
allowance............................ (383,000) (758,000) (1,042,000)
--------- --------- -----------
$ -- $ -- $ --
========= ========= ===========
</TABLE>
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Net operating loss carryforwards............... $ 965,000 $ 1,932,000
Research and development tax credit
carryforwards................................. 121,000 203,000
Deferred start up and organizational expenses.. 56,000 40,000
Other.......................................... 16,000 25,000
----------- -----------
Gross deferred tax assets...................... 1,158,000 2,200,000
Deferred tax asset valuation allowance......... (1,158,000) (2,200,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The Company has generated taxable losses from operations since inception
and, accordingly, has no taxable income available to offset the carryback of
net operating losses. In addition, although management's operating plans
anticipate taxable income in future periods, such plans provide for taxable
losses over the near term and make significant assumptions which cannot be
reasonably assured including approval of the Company's products by the U.S.
Food and Drug Administration and market acceptance of the Company's products
by customers. Based upon the weight of all available evidence, the Company has
provided a full valuation allowance for its deferred tax assets since, in the
opinion of management, realization of these future benefits is not
sufficiently assured (defined as a likelihood of slightly more than 50
percent).
F-14
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES--(CONTINUED)
Income taxes computed using the federal statutory income tax rate differs
from the Company's effective tax rate primarily due to the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Statutory U.S. federal tax rate.................. (35.0)% (35.0)% (35.0)%
State taxes, net of federal tax benefit.......... (7.0) (7.5) (7.2)
Non-deductible expenses.......................... 0.8 2.2 0.8
Federal and state research and development
credits......................................... (2.1) (4.3) (2.0)
Other............................................ (0.1) (1.1) 1.6
Valuation allowance on deferred tax assets....... 43.4 45.7 41.8
----- ----- -----
-- -- --
===== ===== =====
</TABLE>
As of December 31, 1995, the Company has net operating loss carryforwards
and research and development credits which may be used to offset future
federal and state taxable income and tax liabilities as follows:
<TABLE>
<CAPTION>
RESEARCH AND
DEVELOPMENT TAX
CREDIT
YEAR OF NET OPERATING ----------------
EXPIRATION LOSS FEDERAL STATE
---------- ------------- -------- -------
<S> <C> <C> <C>
2007....................................... $ 13,000 $ -- $ --
2008....................................... 677,000 19,000 2,000
2009....................................... 1,705,000 69,000 45,000
2010....................................... 2,476,000 51,000 51,000
---------- -------- -------
$4,871,000 $139,000 $98,000
========== ======== =======
</TABLE>
An ownership change, as defined in the Internal Revenue Code, resulting from
the Company's issuance of additional stock may limit the amount of net
operating loss and tax credit carryforwards that can be utilized annually to
offset future taxable income and tax liabilities. The amount of the annual
limitation is determined based upon the Company's value immediately prior to
the ownership change. Subsequent significant changes in ownership could
further affect the limitation in future years.
9. SAVINGS PLAN
In January 1995, Cambridge Heart adopted a retirement savings plan for all
employees pursuant to Section 401 (k) of the Internal Revenue Code. Employees
become eligible to participate on the first day of the calendar quarter
following their hire date. Employees may contribute any whole percentage of
their salary, up to a maximum annual statutory limit. The Company is not
required to contribute to this plan. The Company made no contributions to this
plan in 1995.
F-15
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS
OPERATING LEASES
On June 1, 1995, the Company entered into a lease for its office space. The
term of this operating lease is five years and is cancelable by the Company
at the end of the fourth year by providing six months notice and payment of a
$22,000 penalty. Total rent expense under all operating leases was
approximately $4,300, $24,800, $68,100 and $97,200 for the years ended
December 31, 1993, 1994 and 1995, and for the period from inception (January
16, 1990) through December 31, 1995, respectively. The Company also has
various noncancelable operating leases for office equipment and furniture
which expire through 1999.
At December 31, 1995, future minimum rental payments under the
noncancelable leases are as follows:
<TABLE>
<S> <C>
1996.............................................................. $128,000
1997.............................................................. 135,000
1998.............................................................. 117,000
1999.............................................................. 66,000
--------
$446,000
========
</TABLE>
LICENSE MAINTENANCE FEES
Pursuant to certain license arrangements, the Company must pay license
maintenance fees ranging from $5,000 to $20,000 per year through 2008 to
maintain its license rights. The Company is also required to meet certain
development and sales milestones as specified in the agreements. Should the
Company fail to meet such milestones, the license arrangements may be
terminated at the sole option of the licensor. License maintenance fees paid
during 1995 amounted to $20,000. No license maintenance fees were paid during
1993 and 1994. The future minimum license maintenance fee commitments at
December 31, 1995 are approximately as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 20,000
1997.............................................................. 20,000
1998.............................................................. 20,000
1999.............................................................. 25,000
Thereafter........................................................ 405,000
--------
$490,000
========
</TABLE>
During the term of these license agreements, the Company is obligated to
pay a royalty (ranging from 1 1/2% to 2%) based on net sales of any products
developed from the licensed technologies. The license maintenance fees
described above are creditable against royalties otherwise payable for such
year.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with two employees which
expire on June 15, 1998 and September 1, 1998, respectively. These agreements
provide that if employment is terminated without cause, the employees will
receive a severance equal to six months and nine months of their respective
salaries.
F-16
<PAGE>
CAMBRIDGE HEART, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. RELATED PARTY TRANSACTIONS, INCLUDING ROYALTY OBLIGATIONS
CONSULTING FEES AND PREFERRED STOCK ISSUANCE COSTS
In February 1993, the Company entered into a consulting and financial
advisory agreement with the selling agent involved with the Company's Series
A Preferred Stock issuance (Note 5). The Chief Executive Officer of the
selling agent is Chairperson of the Company's Board of Directors. Total cash
fees paid under this agreement during 1994 and 1993 were approximately
$41,000 and $63,000, respectively. In addition, in conjunction with the
Series A Preferred Stock issuance in 1993, the Company paid the selling agent
approximately $648,000 in commissions and expenses and warrants to purchase
328,904 shares of common stock were issued to the selling agent (Note 5).
During 1995, the Company entered into an additional agreement with the
selling agent. Under this agreement, the Company obtained consulting and
financial advisory services in relation to the issuance of the Company's
Series B Preferred Stock issuance (Note 5). Total fees paid under this
agreement during 1995 amounted to $87,500.
LICENSE AGREEMENT/CONSULTING AND TECHNOLOGY AGREEMENT
In February 1993, the Company entered into a license agreement with a
member of the Company's Board of Directors. This individual is also Chairman
of the Company's Scientific Advisory Board and a faculty member at the
institution with which the Company has entered into certain other license
agreements. In exchange for exclusive patented technology licensing rights,
the Company is required to pay this individual a royalty based on 3% of net
sales of products developed from such technology. If the Company chooses to
sublicense this product to an unrelated party, the royalty will be based on
20% of the gross revenue received from the unrelated party for products
developed from such technology. Additionally, the Company is required to
spend a minimum of $200,000 in each two-year period for research and
development, clinical trials, marketing, sales and/or manufacturing of
products related to this technology. Should the Company fail to meet this
requirement, the license agreement may be terminated at the sole option of
the licensor.
Also in February 1993, the Company entered into a consulting and technology
agreement with this individual. This agreement, which expires in February
1998, requires the Company to pay monthly consulting fees of either $7,500 or
$12,500, as stipulated in the agreement. Total payments made during 1993,
1994 and 1995 were approximately $116,000, $142,000 and $100,000,
respectively, and are included in research and development expense. The
Company is also required to remit to this individual a royalty of 1% of net
sales of products developed from certain other technology licensed from the
institution described above. If the Company chooses to sublicense such
products to an unrelated party, the royalty will be based on 7% of the gross
revenue received from the unrelated party for products developed from such
technology. In connection with this consulting and technology agreement, a
warrant to purchase 109,634 shares of common stock was issued (Note 5) to
this individual.
Operations through December 31, 1995 and March 31, 1996 did not result in
the recognition of any material royalty expense in connection with these
agreements.
12. MAJOR CUSTOMERS AND EXPORT SALES
During 1995, the Company derived all product revenues from a distributor of
the Company's products in Japan. There was no product revenue prior to 1995.
F-17
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the U.S. Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co. and Bear,
Stearns & Co. Inc. are acting as representatives, has severally agreed to
purchase from the Company, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
U.S. UNDERWRITERS COMMON STOCK
----------------- ------------
<S> <C>
Goldman, Sachs & Co ..............................................
Bear, Stearns & Co. Inc. .........................................
---------
Total........................................................... 2,400,000
=========
</TABLE>
Under the terms and conditions of the U.S. Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the International Offering
(the "International Underwriters") providing for the concurrent offer and sale
of 600,000 shares of Common Stock in an International Offering outside the
United States. The offering price and aggregate underwriting discounts and
commissions per share for the Offerings are identical. The closing of the U.S.
Offering made hereby is a condition to the closing of the International
Offering, and vice versa. The representatives of the International
Underwriters are Goldman Sachs International, an affiliate of Goldman, Sachs &
Co. and Bear, Stearns International Limited, an affiliate of Bear, Stearns &
Co., Inc.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between Syndicates") relating to the Offerings,
each of the U.S. Underwriters named herein has agreed or will agree that, as
part of the distribution of the shares offered hereby and subject to certain
exceptions, it will offer, sell or deliver the shares offered hereby and any
other shares of Common Stock, directly or indirectly, only in the United
States (including the States and the District of Columbia), its territories,
its possessions and other areas subject to its jurisdiction (the "United
States") and to U.S. persons, which term shall mean, for purposes of this
paragraph: (a) any individual who is a resident of the United States or (b)
any corporation, partnership or other entity organized in or under the laws of
the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of
the International Underwriters has agreed or will agree pursuant to the
Agreement between Syndicates that, as part of the distribution of the shares
offered as a part of the International Offering, and subject to certain
exceptions, it will (i) not, directly or indirectly, offer, sell or deliver
shares of Common Stock (a) in the United States or to any U.S. persons or (b)
to any person whom it believes intends to reoffer, resell or deliver the
shares in the United States or to any U.S. persons, and (ii) cause any dealer
to whom it may sell such shares at any concession to agree to observe a
similar restriction.
U-1
<PAGE>
Pursuant to the Agreement Between Syndicates, sales may be made between the
U.S. Underwriters and the International Underwriters of such number of shares
of Common Stock as may be mutually agreed. The price of any shares so sold
shall be the initial public offering price, less an amount not greater than
the selling concession.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
International Offering, to persons located in the United States.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
360,000 additional shares of Common Stock solely to cover over-allotments, if
any. If the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
2,400,000 shares of Common Stock offered in the U.S. Offering. The Company has
granted the International Underwriters a similar option to purchase up to an
aggregate of 90,000 shares of Common Stock.
The Company has agreed during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
the Prospectus, not to offer, sell, contract to sell or otherwise dispose of
any securities of the Company (other than pursuant to employee stock option
plans existing, or on the conversion or exchange of convertible or
exchangeable securities outstanding, on the date of this Prospectus) which are
substantially similar to the shares of Common Stock or which are convertible
or exchangeable into securities which are substantially similar to the shares
of Common Stock, without the prior written consent of the representatives,
except for the shares of Common Stock offered in connection with the Offering.
The Company's executive officers and directors and certain other holders of
Common Stock who will hold in the aggregate shares of Common Stock
following this Offering, have agreed not to offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of or agree to dispose of
any shares of Common Stock or substantially similar securities owned
beneficially by them during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
this Prospectus, without the prior written consent of the representatives of
the Underwriters. See "Shares Eligible for Future Sale".
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered by them.
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price will be negotiated among the Company
and the representatives of the Underwriters. Among the factors to be
considered in determining the initial public offering price of the Common
Stock, in addition to prevailing market conditions, will be the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuation of
companies in related businesses.
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "CAMH".
The Company has agreed to indemnify the several Underwriters against certain
liabilities including liabilities under the Securities Act of 1933.
U-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCE IN WHICH SUCH OFFER OR SOLICITATION IS UN-
LAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization and Cash Position......................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 22
Management............................................................... 38
Certain Transactions..................................................... 47
Principal Stockholders................................................... 49
Description of Capital Stock............................................. 51
Shares Eligible for Future Sale.......................................... 53
Legal Matters............................................................ 54
Experts.................................................................. 54
Additional Information................................................... 55
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
-------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY RE-
QUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 SHARES
CAMBRIDGE HEART, INC.
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
----------------
[LOGO]
----------------
GOLDMAN, SACHS & CO.
BEAR, STEARNS & CO. INC.
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts. All amounts shown are estimates except for the
Securities and Exchange Commission ("SEC") registration fee and the National
Association of Securities Dealers, Inc. ("NASD") filing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 15,500
NASD Filing Fee.................................................. 45,000
Nasdaq Listing Fee............................................... 5,000
Blue Sky Fees and Expenses....................................... 25,000
Transfer Agent and Registrar Fees................................ 10,000
Accounting Fees and Expenses..................................... 150,000
Legal Fees and Expenses.......................................... 200,000
Printing, Engraving and Mailing Expenses......................... 100,000
Miscellaneous.................................................... 74,500
--------
Total.......................................................... $625,000
========
</TABLE>
- --------
* To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Nine of the Registrant's Restated Certificate of Incorporation (the
"Restated Certificate of Incorporation") provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach
of fiduciary duty as a director, except to the extent that the Delaware
General Corporation Law prohibits the elimination or limitation of liability
of directors for breach of fiduciary duty.
Article Nine of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any
litigation or other legal proceeding (other than an action by or in the right
of the Registrant) brought against him by virtue of his position as a director
or officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests
of the Registrant, except that no indemnification shall be made with respect
to any matter as to which such person shall have been adjudged to be liable to
the Registrant, unless a court determines that, despite such adjudication but
in view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount
advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.
II-1
<PAGE>
Indemnification is required to be made unless the Registrant determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent
to the right of indemnification, the director or officer must give the
Registrant notice of the action for which indemnity is sought and the
Registrant has the right to participate in such action or assume the defense
thereof.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred
in connection with an action or proceeding to which he is or is threatened to
be made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if
such person had no reasonable cause to believe his conduct was unlawful;
provided that, in the case of actions brought by or in the right of the
corporation, no indemnification shall be made with respect to any matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances.
Under Section Eight of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of shares of Common and Preferred Stock issued, and the number of options
granted, by the Registrant since May 1, 1993. Further included is the
consideration, if any, received by the Registrant for such shares and options,
and information relating to the section of the Securities Act of 1933 (the
"Securities Act"), or rule of the Securities and Exchange Commission under
which exemption from registration was claimed. All awards of options did not
involve any sale under the Securities Act and none of these securities was
registered under the Securities Act.
1. In September 1993, the Registrant sold 1,200,000 and 1,300,000 shares
of Series A Convertible Preferred Stock to Financial Strategic Portfolios,
Inc. - Health Sciences Portfolio and the Global Health Sciences Fund,
respectively, at $1.00 per share for aggregate consideration of $2,500,000.
2. In September 1993, October 1993 and December 1993, the Registrant sold
3,533,083, 372,500 and 72,500 shares of Series A Convertible Preferred
Stock, respectively, to certain individual investors at $1.00 per share,
for a total aggregate consideration of $3,978,083.
3. In September 1993, the Registrant converted $100,000 of notes payable
due to individual investors into 100,000 shares of Series A Convertible
Preferred Stock.
4. In September 1993, the Registrant issued warrants to purchase 328,904
shares of Common Stock to KBL Healthcare, Inc. in exchange for certain
investment banking services. The warrant is exercisable at $2.00 per share.
5. In December 1993, the Registrant issued a warrant to purchase 109,634
shares of Common Stock to Dr. Richard Cohen in exchange for certain
consulting services to the Company. The warrant is exercisable at $2.00 per
share.
6. In December 1993, the Registrant sold 180,000 shares of Common Stock
to the Massachusetts Institute of Technology pursuant to a certain Option
Agreement dated as of February 10, 1993 at $.002 per share for an aggregate
consideration of $360.
II-2
<PAGE>
7. In August 1994, the Registrant sold 22,500 shares of Common Stock to
Paul Albrecht pursuant to the exercise of options at $.002 per share for
aggregate consideration of $45.
8. In October 1994, the Registrant sold 8,334 shares of Common Stock to a
member of the Scientific Advisory Board pursuant to the exercise of options
at $.02 per share for an aggregate consideration of $167.
9. In March 1995, the Registrant sold 91,163 shares of Common Stock to
Jeffrey M. Arnold pursuant to the exercise of options at $.02 per share for
aggregate consideration of $1,823.
10. In March 1995, the Registrant sold 8,333 shares of Common Stock to
David F. Rollo pursuant to the exercise of options at $.02 per share for an
aggregate consideration of $167.
11. In April 1995, the Registrant sold 8,333 shares of Common Stock to a
member of the Scientific Advisory Board pursuant to the exercise of options
at $.02 per share for an aggregate consideration of $167.
12. In April 1995, the Registrant sold 2,333,333 shares of Series B
Convertible Preferred Stock to certain investment partnerships organized by
Morgan Stanley & Co. at $1.50 per share for aggregate consideration of
$3,500,000.
13. In June 1995, the Registrant sold 2,000 shares of Common Stock to an
employee pursuant to the exercise of options at $.20 per share for
aggregate consideration of $400.
14. In June 1995, the Registrant sold 22,500 shares of Common Stock to
Paul Albrecht pursuant to the exercise of options at $.002 per share for
aggregate consideration of $45.
15. In March 1996, the Registrant sold 45,000 shares of Common Stock to
Paul Albrecht pursuant to the exercise of options at $.20 per share for
aggregate consideration of $9,000.
16. From May 15, 1993 through May 15, 1996, the Registrant granted
options to purchase an aggregate of 916,500 shares of Common Stock to
officers, employees and consultants of the Registrant pursuant to the
Registrant's Amended and Restated 1993 incentive and Non-Qualified Stock
Option Plan. Exercise prices range from $0.002 to $4.00 per share,
resulting in an aggregate consideration of approximately $964,700.
The shares of capital stock and securities issued in the above transactions
were offered and sold in reliance upon the exemption from registration under
Section 4(2) of the Securities Act or Regulation D or Rule 701 promulgated
under the Securities Act, relative to sales by an issuer not involving a
public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
3.1 Certificate of Incorporation, as amended, of the Registrant.
3.2 Form of Restated Certificate of Incorporation of the Registrant to be
filed upon the closing of the public offering.
3.3 By-Laws of the Registrant, as amended.
4.1* Specimen Certificate for shares of Common Stock, $.001 par value, of
the Registrant.
5.1* Opinion of Hale and Dorr with respect to the validity of the
securities being offered.
10.1* 1993 Incentive and Non-Qualified Stock Option Plan, as amended.
10.2 1996 Equity Incentive Plan.
10.3 1996 Employee Stock Purchase Plan.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.4 1996 Director Stock Option Plan.
10.5 Consulting and Technology Agreement between the Registrant and Dr.
Richard J. Cohen, dated February 8, 1993.
10.6 Employment Agreement between the Registrant and Jeffrey M. Arnold,
dated September 1, 1993.
10.7 Employment Agreement between the Registrant and Paul Albrecht, Ph.D.,
dated April 27, 1993.
10.8* License Agreement By and Between the Registrant and Dr. Richard J.
Cohen, dated February 8, 1993.
10.9 Lease By and Between the Registrant and R.W. Connelly, dated June 1,
1995.
10.10* Exclusive distribution agreement by and between the Registrant and
Kontron Instruments Ltd., dated December 28, 1995.
10.11* Exclusive Distributorship Agreement by and between the Registrant and
Fukuda Denshi Co., Ltd.
10.12 License Agreement by and between the Registrant and the Massachusetts
Institute of Technology, dated September 28, 1993, relating to the
technology of "Assessing Myocardial Electrical Stability".
10.13 License Agreement by and between the Registrants and the Massachusetts
Institute of Technology, dated September 28, 1993, relating to the
technology of "Cardiac Electrical Imaging".
10.14 License Agreement by and between the Registrant and the Massachusetts
Institute of Technology, dated September 28, 1993, relating to the
technology of "Pacing Technology For Prevention of Cardiac
Dysrhythmias".
10.15 License Agreement by and between the Registrant and the Massachusetts
Institute of Technology, dated September 28, 1993, relating to the
technology of "Cardiovascular Identification".
10.16* Investors' Rights Agreement by and among the Company, Financial
Strategic Portfolios, Inc.--Health Sciences Portfolio and the Global
Health Sciences Fund, dated September 29, 1993.
10.17* Investors' Rights Agreement by and among the Company and Morgan
Stanley Venture Capital Fund II, L.P., Morgan Stanley Venture Capital
Fund II, C.V. and Morgan Stanley Venture Investors, L.P., dated April
19, 1995.
10.18* Warrant to Purchase Shares of common Stock of the Company in favor of
Richard J. Cohen, dated September 29, 1993.
10.19* Form of additional warrant to purchase shares of Common Stock of the
Company.
10.20* Registration Rights Agreement by and between the Company and KBL
Healthcare, Inc., dated March 19, 1993.
10.21* Registration Rights Agreement by and between the Company and Richard
Cohen, dated March 29, 1993.
10.22* Form of Registration Rights Agreement by and between the Company and
various Founders, each dated March 29, 1993.
11 Computation of pro forma net loss per share.
23.1 Consent of Hale and Dorr (included in Exhibit 5).
23.2 Consent of Price Waterhouse LLP.
24 Powers of Attorney (included on page II-6).
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All applicable information is readily determinable from the notes to the
Company's financial statements.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Restated Certificate of
Incorporation and Amended and Restated By-Laws of the Registrant and the laws
of the State of Delaware, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWN OF BEDFORD, COMMONWEALTH
OF MASSACHUSETTS, ON THIS 31ST DAY OF MAY, 1996.
CAMBRIDGE HEART, INC.
/S/ Jeffrey M. Arnold
By: _____________________________________
JEFFREY M. ARNOLD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Cambridge Heart, Inc., hereby
severally constitute and appoint Jeffrey M. Arnold, Thomas V. Hennessey, Jr.,
John A. Burgess and Steven D. Singer, and each of them singly, our true and
lawful attorneys with full power to them, and each of them singly, to sign for
us and in our names in the capacities indicated below, the Registration
Statement on Form S-1 filed herewith and any and all pre-effective and post-
effective amendments to said Registration Statement and any subsequent
Registration Statement for the same offering which may be filed under Rule
462(b), and generally to do all such things in our names and on our behalf in
our capacities as officers and directors to enable Cambridge Heart, Inc. to
comply with the provisions of the Securities Act, as amended, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any
of them, to said Registration Statement and any and all amendments thereto.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ Jeffrey M. Arnold President, Chief Executive May 31, 1996
- ------------------------------------- Officer and Director
JEFFREY M. ARNOLD (Principal Executive
Officer)
/S/ Thomas V. Hennessey, Jr. Chief Financial Officer, May 31, 1996
- ------------------------------------- Vice President of
THOMAS V. HENNESSEY, JR. Operations and
Treasurer (Principal
Financial and
Accounting Officer)
II-6
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/S/ Marlene Krauss Chairperson, May 31, 1996
- ------------------------------------- Secretary and
MARLENE KRAUSS Director
/S/ Zachary C. Berk Director May 31, 1996
- -------------------------------------
ZACHARY C. BERK
/S/ Richard J. Cohen Director May 31, 1996
- -------------------------------------
RICHARD J. COHEN
/S/ M. Fazle Husain Director May 31, 1996
- -------------------------------------
M. FAZLE HUSAIN
/S/ David F. Muller Director May 31, 1996
- -------------------------------------
DAVID F. MULLER
/S/ David F. Rollo Director May 31, 1996
- -------------------------------------
DAVID F. ROLLO
/S/ Rolf S. Stutz Director May 31, 1996
- -------------------------------------
ROLF S. STUTZ
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
3.1 Certificate of Incorporation, as amended, of the Registrant.
3.2 Form of Restated Certificate of Incorporation of the Registrant
to be filed upon the closing of the public offering.
3.3 By-Laws of the Registrant, as amended.
4.1* Specimen Certificate for shares of Common Stock, $.001 par
value, of the Registrant.
5.1* Opinion of Hale and Dorr with respect to the validity of the
securities being offered.
10.1* 1993 Incentive and Non-Qualified Stock Option Plan, as amended.
10.2 1996 Equity Incentive Plan.
10.3 1996 Employee Stock Purchase Plan.
10.4 1996 Director Stock Option Plan.
10.5 Consulting and Technology Agreement between the Registrant and
Dr. Richard J. Cohen, dated February 8, 1993.
10.6 Employment Agreement between the Registrant and Jeffrey M.
Arnold, dated September 1, 1993.
10.7 Employment Agreement between the Registrant and Paul Albrecht,
Ph.D., dated April 27, 1993.
10.8* License Agreement By and Between the Registrant and Dr. Richard
J. Cohen, dated February 8, 1993.
10.9 Lease By and Between the Registrant and R.W. Connelly, dated
June 1, 1995.
10.10* Exclusive distribution agreement by and between the Registrant
and Kontron Instruments Ltd., dated December 28, 1995.
10.11* Exclusive Distributorship Agreement by and between the
Registrant and Fukuda Denshi Co., Ltd.
10.12 License Agreement by and between the Registrant and the
Massachusetts Institute of Technology, dated September 28,
1993, relating to the technology of "Assessing Myocardial
Electrical Stability".
10.13 License Agreement by and between the Registrants and the
Massachusetts Institute of Technology, dated September 28,
1993, relating to the technology of "Cardiac Electrical
Imaging".
10.14 License Agreement by and between the Registrant and the
Massachusetts Institute of Technology, dated September 28,
1993, relating to the technology of "Pacing Technology For
Prevention of Cardiac Dysrhythmias".
10.15 License Agreement by and between the Registrant and the
Massachusetts Institute of Technology, dated September 28,
1993, relating to the technology of "Cardiovascular
Identification".
10.16* Investors' Rights Agreement by and among the Company, Financial
Strategic Portfolios, Inc.--Health Sciences Portfolio and the
Global Health Sciences Fund, dated September 29, 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.17* Investors' Rights Agreement by and among the Company and Morgan
Stanley Venture Capital Fund II, L.P., Morgan Stanley Venture
Capital Fund II, C.V. and Morgan Stanley Venture Investors,
L.P., dated April 19, 1995.
10.18* Warrant to Purchase Shares of common Stock of the Company in
favor of Richard J. Cohen, dated September 29, 1993.
10.19* Form of additional warrant to purchase shares of Common Stock
of the Company.
10.20* Registration Rights Agreement by and between the Company and
KBL Healthcare, Inc., dated March 19, 1993.
10.21* Registration Rights Agreement by and between the Company and
Richard Cohen, dated March 29, 1993.
10.22* Form of Registration Rights Agreement by and between the
Company and various Founders, each dated March 29, 1993.
11 Computation of pro forma net loss per share.
23.1 Consent of Hale and Dorr (included in Exhibit 5).
23.2 Consent of Price Waterhouse LLP.
24 Powers of Attorney (included on page II-6).
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"CAMBRIDGE HEART, INC.", FILED IN THIS OFFICE ON THE EIGHTH DAY OF MAY, A.D.
1995, AT 4 O'CLOCK P.M.
[SEAL APPEARS /s/ Edward J. Freel
HERE] ------------------------------------
Edward J. Freel, Secretary of State
2219291 8100 AUTHENTICATION: 7931809
960128150 DATE: 05-02-96
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF CAMBRIDGE HEART, INC.
a Delaware Corporation
- --------------------------------------------------------------------------------
Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware
- --------------------------------------------------------------------------------
Cambridge Heart, Inc. (hereinafter called the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware does hereby certify:
FIRST: That a Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on January 16, 1990 for
Marico Corp.; that a Restated Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on June 19, 1992 which, among other
things, changed the name of the Corporation to CardioDynamics, Inc.; that a
Certificate of Amendment to the Restated Certificate of Incorporation was filed
with the Secretary of State of the State of Delaware on February 5, 1993
changing the name of the Corporation to Cambridge Heart, Inc.; and that a
Restated Certificate of Incorporation was filed with the Secretary of State of
Delaware on September 23, 1993.
SECOND: This Amended and Restated Certificate of Incorporation restates,
integrates and further amends the Restated Certificate of Incorporation of the
Corporation. The capital of the Corporation will not be reduced under or by
reason of the amendments to the Restated Certificate of Incorporation effected
hereby.
THIRD: That a resolution was duly adopted by the Board of Directors, at a
duly constituted meeting of the Board of Directors held on April 6, 1995,
setting forth the following proposed amendment and restatement of the Restated
Certificate of Incorporation of the Corporation and declaring said amendment and
restatement to be advisable. The stockholders of the Corporation duly approved
said proposed amendment and restatement by written consent in accordance with
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware, and written notice of such consent has been given to all stockholders
who
<PAGE>
have not consented in writing to said amendment and restatement. Accordingly,
said amendment and restatement has been duly adopted in accordance with Section
245 of the General Corporation Law of the State of Delaware. The resolution
setting forth such amendment and restatement is as follows:
"RESOLVED, that the Restated Certificate of Incorporation of the
Corporation be amended and restated in its entirety, so that, hereby amended
and restated, said Restated Certificate of Incorporation shall read in its
entirety as follows:
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of CAMBRIDGE HEART, INC.
a Delaware Corporation
ARTICLE I
The name of the Corporation is Cambridge Heart, Inc.
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
The nature of the Corporation's business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
ARTICLE IV
A. Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the Corporation is authorized to issue is
30,400,000 shares: 20,000,000 shares shall be Common Stock, par value $.001 per
share, and 10,400,000 shares shall be Preferred Stock, par value $.001 per
share, of which 6,900,000 shares shall be designated Series A Convertible
Preferred Stock (the "Series A Preferred Stock") and of which 2,500,000 shares
shall be designated Series B Convertible Preferred Stock (the "Series B
Preferred Stock").
B. Rights, Preferences and Restrictions of Preferred Stock. The Preferred
-------------------------------------------------------
Stock authorized by this Restated Certificate of Incorporation may be issued
from time to time in
-2-
<PAGE>
one or more series. The voting powers, designations, preferences and other
special rights, and qualifications, limitations, or restrictions thereof, of the
Series A Preferred Stock and the Series B Preferred Stock are as set forth below
in this Article IV(B). The Board of Directors is hereby expressly vested with
the authority to determine and fix in the resolution or resolutions providing
for the issuance of additional series of Preferred Stock the voting powers, full
or limited, or no voting powers, and such designations, preferences and
relative, participating, optional, or other special rights (including conversion
or exchange rights), and qualifications, limitations, or restrictions thereof,
of each such series to the full extent now or hereafter permitted by the laws of
the State of Delaware. The Board of Directors is also authorized to increase or
decrease the number of shares of any series (other than the Series A Preferred
Stock or Series B Preferred Stock), prior or subsequent to the issue of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
1. Dividend Provisions. The Company shall not declare, or pay,
-------------------
any cash dividends on any Common Stock or Preferred Stock of the Company without
the prior written consent of the holders of Series A Preferred Stock and Series
B Preferred Stock, voting together as a class. Subject to the rights of any
other series of Preferred Stock that may from time to time come into existence,
the holders of shares of Series A Preferred Stock and the holders of shares of
Series B Preferred Stock (on an as converted basis) together with the holders of
Common Stock, shall be entitled to receive dividends, on a pari passu basis, out
---- -----
of any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend on any junior securities of the
Corporation, when, as and if declared by the Board of Directors. No dividends
shall be payable upon any junior securities of the Corporation unless
equivalent dividends, on an as converted basis, are declared and paid
concurrently on the Series A Preferred Stock, the Series B Preferred Stock and
the Common Stock.
2. Liquidation Preference.
----------------------
(a) Series B Preferred Stock. In the event of any
------------------------
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, the holders of Series B Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Series A Preferred Stock or Common Stock by reason
of their ownership thereof, an amount per share equal to $1.50 (as adjusted for
stock splits, combinations or
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<PAGE>
similar events) for each outstanding share of Series B Preferred Stock plus an
amount equal to all dividends declared but theretofore unpaid. If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series B Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then the
entire assets and funds of the Corporation legally available for distribution to
the holders of Series B Preferred Stock shall be distributed ratably among the
holders of the Series B Preferred Stock in proportion to the preferential amount
each such holder is otherwise entitled to receive.
(b) Series A Preferred Stock In the event of any
------------------------
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, after payment in full of the preferential amount of the shares of
Series B Preferred Stock as set forth above, the holders of Series A Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets of the Corporation to the holders of Common Stock by
reason of their ownership thereof, an amount per share equal to $1.00 (as
adjusted for stock splits, combinations or similar events) for each outstanding
share of Series A Preferred Stock plus an amount equal to all dividends declared
but theretofore unpaid. If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series A Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the Corporation
legally available for distribution to the holders of Series A Preferred Stock
shall be distributed ratably among the holders of the Series A Preferred Stock
in proportion to the preferential amount each such holder is otherwise entitled
to receive.
(c) Upon the completion of the distributions required by
subsections (a) and (b) of this Section 2 of this Article IV B, the remaining
assets of the Corporation available for distribution to stockholders shall be
distributed among the holders of the Series A Preferred Stock and the Common
Stock pro rata based on the number of shares of Common Stock held by each holder
of Common Stock and issuable upon conversion of all such Series A Preferred
Stock; provided, however, that the total distribution to the holders of Series A
Preferred Stock pursuant to subsections (b) and (c) of this Section 2 of this
Article IV B shall not exceed an amount per share equal to $1.50 (not including
any dividends declared but theretofore unpaid).
(d) For purposes of this Section 2 of this Article IV B, a
liquidation, dissolution or winding up of the Corporation shall be deemed to be
occasioned by, or to include, (A) the acquisition of the Corporation by another
entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation
-4-
<PAGE>
but, excluding any merger effected exclusively for the purpose of changing the
domicile of the Corporation); or (B) a sale of all or substantially all of the
assets of the Corporation; unless the Corporation's stockholders of record as
constituted immediately prior to such acquisition or sale will, immediately
after such acquisition or sale (by virtue of securities issued as consideration
for the Corporation's acquisition or sale or otherwise), hold at least 50% of
the voting power of the surviving or acquiring entity.
3. Redemption. Neither the Series A Preferred Stock nor the
----------
Series B Preferred Stock is redeemable.
4. Conversion. The holders of the Series A Preferred Stock and
----------
the holders of the Series B Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(a) Rights to Convert. (i) Series A Preferred Stock. Each share
----------------- ------------------------
of Series A Preferred Stock shall be convertible, at the option of the holder
thereof at any time after the date of issuance of such share at the office of
the Corporation or any transfer agent for such stock, into such number of
fully-paid and non-assessable shares of Common Stock as is determined by
dividing the Original Issue Price by the Conversion Price at the time in effect
for such shares. The initial Conversion Price per share for shares of Series A
Preferred Stock and the Original Issue Price for the Series A Preferred Stock
shall be $1.00; provided, however, that the Conversion Price for the Series A
Preferred Stock shall be subject to adjustment as set forth in subsection (d) of
this Section 4 of this Article IV B.
(ii) Series B Preferred Stock. Each share of
------------------------
Series B Preferred Stock shall be convertible, at the option of the holder
thereof at any time after the date of issuance of such share at the office of
the Corporation or any transfer agent for such stock, into such number of
fully-paid and non-assessable shares of Common Stock as is determined by
dividing the Series B Original Issue Price by the Conversion Price at the time
in effect for such shares. The initial Conversion Price per share for shares of
Series B Preferred Stock and the Series B Original Issue Price for the Series B
Preferred Stock shall be $1.50; provided, however, that the Conversion Price
for the Series B Preferred Stock shall be subject to adjustment as set forth in
subsection (d) of this Section 4 of this Article IV B.
(b) Automatic Conversion. Each share of Series A Preferred
--------------------
Stock and Series B Preferred Stock shall automatically be converted into such
number of fully-paid and nonassessable shares of Common Stock as is determined
by dividing
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<PAGE>
the Original Issue Price or Series B Original Issue Price, as applicable, by the
Conversion Price at the time in effect for such shares immediately upon the
earlier of (i) the closing of the Corporation's sale of its Common Stock in a
firm commitment, underwritten public offering pursuant to a registration
statement under the Securities Act of 1933, as amended (the "Act"), the public
offering price of which is not less than $3.00 per share (subject to adjustment
for stock splits, combinations or similar events) and which results in gross
proceeds of not less than $10,000,000 in the aggregate (before deducting
underwriting commissions and discounts and expenses) or (ii) with respect to the
Series A Preferred Stock, the date specified by written consent or agreement of
the holders of fifty-one percent (51%) of the then outstanding shares of
Series A Preferred Stock or (iii) with respect to the Series B Preferred Stock,
the date specified by written consent or agreement of the holders of fifty-one
percent (51%) of the then outstanding shares of Series B Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series A
-----------------------
Preferred Stock or Series B Preferred Stock shall be entitled to convert the
same into shares of Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series A Preferred Stock or Series B Preferred Stock, as
the case may be, and shall give written notice to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of preferred stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of Series A
Preferred Stock or Series B Preferred Stock, as the case may be, to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Act, the conversion may, at the option of any holder
tendering Series A Preferred Stock or Series B Preferred Stock for conversion,
be conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon conversion of the Series A Preferred Stock or Series B
Preferred Stock shall not be deemed to have converted such Series A Preferred
Stock or Series B
-6-
<PAGE>
Preferred Stock until immediately prior to the closing of such sale of
securities.
Upon the conversion of the Series A Preferred Stock or Series B preferred
Stock pursuant to subsection (b) above, all certificates evidencing the shares
of Series A Preferred Stock or Series B Preferred Stock which are converted in
accordance with the provision thereof shall, from and after the date such shares
are so converted, be deemed to have been retired and cancelled and the shares of
Series A Preferred Stock or Series B Preferred Stock represented thereby
converted into Common Stock for all purposes, regardless of whether the holder
or holders thereof shall have surrendered such certificates on or prior to such
date.
(d) Conversion Price Adjustments of Preferred Stock. The
-----------------------------------------------
Conversion Price of the Series A Preferred Stock and Series B Preferred
Stock shall be subject to adjustment from time to time as set forth below.
(i) (A) If the Corporation shall issue, (x) after the
date upon which any shares of Series A Preferred Stock were first issued (for
purposes of adjusting the Series A Preferred Stock's Conversion Price) or (y)
after the date upon which any shares of Series B Preferred Stock were first
issued (for purposes of adjusting the Series B Preferred Stock's Conversion
Price) (each being a "Purchase Date" with respect to such series), any
Additional Stock (as defined below for purposes of this Article IV B) without
consideration or for a consideration per share less than the Conversion Price
for such series in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for each such series in effect immediately prior to
each such issuance shall forthwith (except as otherwise provided in this clause
(i) be adjusted to a price determined by multiplying each such series'
Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance plus
the number of shares of Common Stock that the aggregate consideration received
by the Corporation for such issuance would purchase at such Conversion Price,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of such
Additional Stock.
(B) Except to the limited extent provided for in
subsections (E)(3) and (E)(4) of this Section 4(d) of this Article IV B, no
adjustment of any such Conversion Price pursuant to this subsection 4(d)(i)
shall have the effect of increasing such Conversion Price above the Conversion
Price in effect immediately prior to such adjustment.
-7-
<PAGE>
(C) In the case of the issuance of
Additional Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by the Corporation for any underwriting
or otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of
Additional Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined in good faith by the Board of Directors.
(E) In the case of the issuance (whether
before, on or after a Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the satisfaction of
any conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential anti-dilution adjustments) of
such options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections 4(d)(i)(C) and 4(d)(i)(O) of this Article IV B), if any, received by
the Corporation upon the issuance of such options or rights plus the minimum
exercise price provided in such options or rights (without taking into account
potential anti-dilution adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange (assuming
the satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking into
account potential anti-dilution adjustments) for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued
-8-
<PAGE>
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation (without taking into account potential
anti-dilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)) of
this Article IV B.
(3) In the event of any change in
the number of shares of Common Stock deliverable or in the consideration payable
to the Corporation upon exercise of such options or rights or upon conversion of
or in exchange for such convertible or exchangeable securities, (excluding a
change resulting solely from the anti-dilution provisions thereof if such change
results from an event which gives rise to an anti-dilution adjustment under this
subsection 4(d)), the Conversion Price of the Series A Preferred Stock and of
the Series B Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual issuance of
Common Stock or any payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such
options or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A Preferred Stock
and of the Series B Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities or options or rights related
to such securities, shall be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or exchangeable securities
which remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(5) The number of shares of Common
Stock deemed issued and the consideration deemed paid therefor pursuant to
subsections 4(d)(i)(E)(1) and (2) of Article IV B shall be appropriately
adjusted to reflect any change, termination or expiration of the type described
in either subsection 4(d)(i)(E)(3) or (4) of Article IV B.
(ii) "Additional Stock" shall mean, for each
of the Series A Preferred Stock and Series B Preferred Stock, any shares of
common Stock issued (or deemed to have been issued pursuant to subsection 4(d)
(i)(E) of Article IV B) by the Corporation after the respective Purchase Date
other than:
-9-
<PAGE>
(A) Common Stock issued pursuant to a
transaction described in subsection 4(d)(iii) of Article IV B hereof;
(B) Common Stock issuable or issued to
employees, advisors, consultants or outside directors of the Corporation,
without consideration or for a consideration per share less than the Conversion
Price for the Series A Preferred Stock or Series B Preferred Stock, as the case
may be, in effect immediately prior to the time such Common Stock is issued,
directly or pursuant to a stock option plan or restricted stock plan approved by
the Board of Directors of the Corporation; provided, however, that the
cumulative total number of shares of Common Stock so issuable and issued (and
not repurchased at cost by the Corporation in connection with the termination of
employment) does not exceed at any time 3,377,326 shares of Common Stock
(subject to adjustment for stock splits, combinations or similar events;
(C) Common Stock issued or issuable
upon conversion of the Series A Preferred Stock or Series B Preferred Stock; or
(D) Common Stock issuable or issued upon
exercise of certain warrants issued or issuable to KBL Healthcare, Inc. (or its
designees) and Dr. Richard J. Cohen; provided, however, that the cumulative
total number of shares of Common Stock so issuable or issued does not exceed
877,077 shares of Common Stock (before giving effect to any anti-dilution
adjustments provided for therein) .
(iii) In the event the Corporation should at
any time or from time to time after a Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series A Preferred Stock and of the Series B
Preferred Stock shall be appropriately decreased so that the number of shares of
Common Stock issuable on conversion of each share of such Series A Preferred
Stock or Series B Preferred Stock, as the case may be, shall be increased in
proportion to such increase in the
-10-
<PAGE>
aggregate of shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents.
(iv) If the number of shares of Common
Stock outstanding at any time after a Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the Series A Preferred
Stock and for the Series B Preferred Stock, as the case may be, shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(e) Other Distribution. In the event the
------------------
Corporation shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by the Corporation or other persons, assets
(excluding cash dividends) or options or rights not referred to in subsection
4(d)(i) of this Article IV B, then, in each such case for the purpose of this
subsection 4(e), the holders of the Series A Preferred Stock and of the Series B
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series A Preferred Stock and
Series B Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(f) Recapitalizations. If at any time or from
-----------------
time to time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or Section 2) provision shall be made so that the
holders of the Series A Preferred Stock and Series B Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series A Preferred
Stock or Series B Preferred Stock the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A Preferred Stock and Series B Preferred Stock after
the recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
issuable upon conversion) shall be applicable after that event as nearly
equivalent as may be practicable.
(g) No Impairment. The Corporation will not, by
-------------
amendment of its Amended and Restated Certificate of Incorporation or through
any reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or
-11-
<PAGE>
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock and Series B
Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to
------------------------------------------
Adjustments.
- -----------
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock or Series B
Preferred Stock, and the number of shares of Common Stock to be issued shall be
rounded to the nearest whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of the total
number of shares of Series A Preferred Stock or Series B Preferred Stock the
holder is at the time converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A Preferred Stock or Series B
Preferred Stock pursuant to this Section 4, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series A Preferred Stock
or Series B Preferred Stock, as the case may be, a certificate setting forth
such adjustment or readjustment and showing in reasonable detail the facts upon
which such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Series A Preferred Stock or Series
B Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price for such Series A Preferred Stock or Series B Preferred Stock
at the time in effect, and (C) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of a share of Series A Preferred Stock or Series B Preferred Stock.
(i) Notices of Record Date. In the event of any taking
by the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A Preferred Stock and Series B Preferred
Stock, at least twenty (20) days
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<PAGE>
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock and Series B Preferred
Stock, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series A
Preferred Stock and Series B Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Preferred Stock
and Series B Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, engaging
in best efforts to obtain the requisite stockholder approval of any necessary
amendment to these provisions.
(k) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Series A Preferred Stock and
Series B Preferred Stock shall be deemed given on the date it is sent if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his, her or its address appearing on the books of the
Corporation.
5. Voting Rights. (a) General. In addition to the special
------------- -------
voting rights set forth below, the holders of each share of Series A Preferred
Stock and Series B Preferred Stock shall have the right to one vote for each
share of Common Stock into which such Series A Preferred Stock or Series B
Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any stockholders' meeting in accordance with
the bylaws of the Corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote. Unless otherwise provided herein or
provided by applicable law, where entitled to vote, the holders of Common Stock,
Series A Preferred Stock and Series B Preferred Stock shall vote together as a
singe class. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis
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<PAGE>
(after aggregating all shares into which shares of Series A Preferred Stock of
Series B Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
(b) Series B Director. So long as at least 25% of the
-----------------
originally issued Series B Preferred Stock remains outstanding, the holders of
the Series B Preferred Stock, voting together as a class, shall be entitled to
elect one director to the Board of Directors of the Corporation (the "Series B
Director"). Should a vacancy occur with respect to the Series B Director,
whether arising through death, resignation or removal, such vacancy shall be
filled by the holders of the Series B Preferred Stock.
(c) Special Class Vote. Holders of the Series B Preferred
------------------
Stock shall vote separately as a class on (i) all matters involving the sale by
the Corporation of all or substantially all of its assets or a merger or
consolidation involving the Corporation after which the Corporation's
stockholders of record as constituted immediately prior to the consummation of
such transaction would hold, immediately after consummation of such transaction,
securities constituting less than fifty percent (50%) of the voting power of the
surviving or resulting entity unless the consideration to be received by the
holders of Series B Preferred Stock as a result of such transaction would be at
least $3.00 per share of Series B Preferred Stock and (ii) any amendment to the
Company's Amended and Restated Certificate of Incorporation that adversely
affects the Series B Preferred Stock in a manner differently and adversely from
other shares of Preferred Stock or Common Stock. However, except as otherwise
set forth below, in all cases where the Series A Preferred Stock is similarly
adversely affected, the holders of Series A Preferred Stock and Series B
Preferred Stock shall vote together as a class.
Holders of the Series A Preferred Stock and holders of the Series B
Preferred Stock shall vote together as a class (i) on any amendment to the
Company's Amended and Restated Certificate of Incorporation that authorizes any
equity security, including any other security or debt instrument convertible
into or exercisable for any such equity security, having a preference over the
Series A Preferred Stock, but not over the Series B Preferred Stock, with
respect to dividends, redemption or liquidation, or (ii) to authorize the
Company to declare, or pay, any cash dividends on any Common Stock or Preferred
Stock of the Company. Notwithstanding the foregoing, holders of the Series A
Preferred Stock and holders the Series B Preferred Stock shall each vote as a
separate class on any amendment to the Company's Amendment and Restated
Certificate of Incorporation that authorizes any equity security, including any
other security or debt instrument convertible into or exercisable for any such
equity
-14-
<PAGE>
security, having a preference over the Series B Preferred Stock with respect to
dividends, redemption or liquidation.
6. Status of Converted Stock. In the event any shares of Series A
-------------------------
Preferred Stock or Series B Preferred Stock shall be converted pursuant to
Section 4 of Article IV B, the shares so converted shall be cancelled and shall
not be issuable by the Corporation. The Amended and Restated Certificate of
Incorporation of the Corporation may be appropriately amended from time to time
to effect the corresponding reduction in the Corporation's authorized capital
stock.
7. Protective Provisions. (i) Series A Preferred Stock. So long as
--------------------- ------------------------
any shares of Series A Preferred Stock are outstanding, the Corporation shall
not without first obtaining the written consent of the holders of a least 51% of
the then outstanding shares of Series A Preferred Stock:
(a) increase or decrease (other than by conversion) the total
number of authorized shares of Series A Preferred Stock or amend, alter or
change the terms of the Series A Preferred Stock;
(b) increase the authorized number of directors of the Company
to more than nine (9) members;
(c) redeem or repurchase any outstanding equity securities of
the Corporation except for: repurchases of unvested or restricted shares of
Common Stock at cost from employees, officers, consultants, or members of the
Board of Directors pursuant to repurchase options of the Corporation (i)
currently outstanding or (ii) hereafter entered into pursuant to a stock option
plan or restricted stock plan approved by the Company's Board of Directors;
(d) redeem, purchase or otherwise acquire for value any shares
or shares of Series A Preferred Stock except pursuant to an offer made upon the
same terms pro rata to all holders of outstanding shares of Series A Preferred
Stock;
(e) declare or pay dividends or make any other distribution to
the holders of any security junior to the Series A Preferred Stock with respect
to dividends.
(ii) Series B Preferred Stock. So long as any shares of Series B
------------------------
Preferred Stock are outstanding, the Corporation shall not without first
obtaining the written consent of the holders of at least 51% of the then
outstanding shares of Series B Preferred Stock:
(a) increase or decrease (other than by conversion) the total
number of authorized shares of Series B
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<PAGE>
Preferred Stock or amend, alter or change the terms of the Series B Preferred
Stock;
(b) increase the authorized number of directors of the Company to
more than nine (9) members;
(c) redeem or repurchase any outstanding equity securities of
the Corporation except for: repurchases of unvested or restricted shares of
Common Stock at cost from employees, officers, consultants, or members of the
Board of Directors pursuant to repurchase options of the Corporation (i)
currently outstanding or (ii) hereafter entered into pursuant to a stock option
plan or restricted stock plan approved by the Company's Board of Directors;
(d) redeem, purchase or otherwise acquire for value any share or
shares of Series B Preferred Stock except pursuant to an offer made upon the
same terms pro rata to all holders of outstanding shares of Series B Preferred
Stock;
(e) declare or pay dividends or make any other distribution to
the holders of any security junior to the Series B Preferred Stock with respect
to dividends.
c. Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of
---------------
all classes of stock at the time outstanding having prior rights as to
dividends, and the rights of series of Preferred Stock which may from time to
time come into existence, the holders of the Common Stock together with the
holders of shares of Series A Preferred Stock (on an as converted basis) and
holders of shares of Series B Preferred Stock (on an as converted basis) shall
be entitled to receive, on a pari passu basis, when and as declared by the Board
---- -----
of Directors, out of any assets of the Corporation legally available therefor,
such dividends as may be declared from time to time by the Board of Directors.
2. Liquidation. Upon the liquidation, dissolution or winding up
-----------
of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Article IV B hereof.
3. Voting Rights. The holder of each share of Common Stock
-------------
shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the by-laws of the Corporation, and
shall be entitled to vote upon such manners and in such matter as may be
provided by law.
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<PAGE>
ARTICLE V
Except as otherwise provided in this Restated Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the by-laws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to
time by a by-law or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the by-laws of the Corporation.
ARTICLE IX
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Neither the amendment nor repeal of this Article IX, nor the adoption
of any provision of the Certificate of Incorporation inconsistent with this
Article IX, shall eliminate or reduce the effect of this Article IX in respect
of any matter occurring, or any cause of action, suit or claim that, accrued or
arose, prior to such amendment, repeal or adoption of an inconsistent provision.
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<PAGE>
ARTICLE X
The Corporation shall, to the fullest extent permitted by Delaware law
as in effect from time to time, indemnify any person against all liability and
expense (including attorneys' fees) incurred by reason of the fact that he is or
was a director or officer of the Corporation or, while serving as a director or
officer of the Corporation, he is or was serving at the request of the
Corporation as a director, officer, partner or trustee of, or in any similar
managerial or fiduciary position of, or as an employee or agent of, another
corporation, partnership, joint venture, trust, association, or other entity.
Expenses (including attorneys' fees) incurred in defending an action, suit, or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit, or proceeding to the full extent and under the circumstances
permitted by Delaware law. Such right of indemnification shall inure whether or
not the claim asserted is based on matters which antedate the adoption of this
Article X. Such right of indemnification shall continue as to a person who has
ceased to be a director, officer, incorporator, employee, partner, trustee, or
agent and shall inure to the benefit of the heirs, executors, administrators and
personal representatives of such a person. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, fiduciary, or agent of the Corporation against any liability asserted
against and incurred by such person in any such capacity or arising out of such
person's position, whether or not the Corporation would have the power to
indemnify against such liability under the provisions of this Article X. The
indemnification provided by this Article X shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under this certificate
of incorporation, any by-law, agreement, vote of stockholders or disinterested
directors, statue, or otherwise. The provisions of this Article X shall not be
deemed to preclude the Corporation from indemnifying other persons from similar
or other expenses and liabilities as the board of directors or the stockholders
may determine in a specific instance or by resolution of general application.
ARTICLE XI
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of section 279 of Title 8 of the Delaware Code
order a meeting of the
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<PAGE>
creditors or class of conditions, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
Article XII
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statue, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its President and attested
to by its Secretary, this 8th day of May, 1995.
--- ---
CAMBRIDGE HEART, INC.
/s/ Jeffrey D. Arnold
-------------------------------
Jeffrey D. Arnold
President
/s/ Marlene R. Krauss
-------------------------------
Marlene R. Krauss, M.D.
Secretary
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<PAGE>
EXHIBIT C EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CAMBRIDGE HEART, INC.
Pursuant to Sections 242 and 245
of the General Corporation Law
of the State of Delaware
CAMBRIDGE HEART, INC., (the "Corporation"), a corporation
organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "General Corporation
Law"), hereby certifies as follows:
1. The name of the corporation is Cambridge Heart, Inc.
The corporation was originally incorporated on January 16, 1990.
2. This Amended and Restated Certificate of Incorporation
restates and integrates and further amends the Amended and
Restated Certificate of Incorporation of the Corporation, was duly
adopted in accordance with the provisions of Sections 242 and 245
of the General Corporation Law, and was approved by written
consent of the stockholders of the Corporation given in
accordance with the provisions of Section 228 of the General
Corporation Law (prompt notice of such action having been given to
those stockholders who did not consent in writing). The
resolution setting forth the Amended and Restated Certificate of
Incorporation is as follows:
RESOLVED: That the Amended and Restated Certificate of
--------
Incorporation of the Corporation be and hereby is amended and
restated in its entirety so that the same shall read as follows:
FIRST. The name of the Corporation is:
Cambridge Heart, Inc.
SECOND. The address of its registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in
the City of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD. The nature of the business or purposes to be
conducted or promoted by the Corporation is as follows:
To engage in any lawful act or activity for which
corporations may be organized under the General Corporation
Law of Delaware.
<PAGE>
FOURTH. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 27,000,000
shares, consisting of (i) 25,000,000 shares of Common Stock, $.001
par value per share ("Common Stock"), and (ii) 2,000,000 shares of
Preferred Stock, $.001 par value per share ("Preferred Stock").
The following is a statement of the designations and the
powers, privileges and rights, and the qualifications, limitations
or restrictions thereof in respect of each class of capital stock
of the Corporation.
A. COMMON STOCK.
------------
1. General. The voting, dividend and liquidation rights of
-------
the holders of the Common Stock are subject to and qualified by
the rights of the holders of the Preferred Stock of any series as
may be designated by the Board of Directors upon any issuance of
the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to
------
one vote for each share held at all meetings of stockholders (and
written actions in lieu of meetings). There shall be no
cumulative voting.
The number of authorized shares of Common Stock may be
increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote,
irrespective of the provisions of Section 242(b)(2) of the General
Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the
---------
Common Stock from funds lawfully available therefor as and when
determined by the Board of Directors and subject to any
preferential dividend rights of any then outstanding Preferred
Stock.
4. Liquidation. Upon the dissolution or liquidation of the
-----------
Corporation, whether voluntary or involuntary, holders of Common
Stock will be entitled to receive all assets of the Corporation
available for distribution to its stockholders, subject to any
preferential rights of any then outstanding Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or
more series, each of such series to have such terms as stated or
expressed herein and in the resolution or resolutions providing
for the issue of such series adopted by the Board of Directors of
the Corporation as hereinafter provided. Any shares of Preferred
- 2 -
<PAGE>
Stock which may be redeemed, purchased or acquired by the
Corporation may be reissued except as otherwise provided by law or
this Certificate of Incorporation. Different series of Preferred
Stock shall not be construed to constitute different classes of
shares for the purposes of voting by classes unless expressly
provided.
Authority is hereby expressly granted to the Board of
Directors from time to time to issue the Preferred Stock in one or
more series, and in connection with the creation of any such
series, by resolution or resolutions providing for the issue of
the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special
rights, and qualifications, limitations or restrictions thereof,
including without limitation thereof, dividend rights, conversion
rights, redemption privileges and liquidation preferences, as
shall be stated and expressed in such resolutions, all to the full
extent now or hereafter permitted by the General Corporation Law
of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to
the extent permitted by law and this Certificate of Incorporation.
Except as otherwise provided in this Certificate of Incorporation,
no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any
shares of any series of the Preferred Stock authorized by and
complying with the conditions of this Certificate of
Incorporation, the right to have such vote being expressly waived
by all present and future holders of the capital stock of the
Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers
conferred by statute, it is further provided:
1. Election of directors need not be by written
ballot.
2. The Board of Directors is expressly authorized to
adopt, amend or repeal the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them
and/or between this Corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof, or on the
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<PAGE>
application of any receiver or receivers appointed for this
Corporation under the provisions of section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this Corporation under
the provisions of section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as
the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any
reorganization of this corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and
the said reorganization shall, if sanctioned by the court to which
the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or
class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH. Except to the extent that the General Corporation
Law of the State of Delaware prohibits the elimination or
limitation of liability of directors for breaches of fiduciary
duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any
provision of law imposing such liability. No amendment to or
repeal of this provision shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation
for or with respect to any acts or omissions of such director
occurring prior to such amendment.
NINTH. 1. Action, Suits and Proceedings Other than by or
----------------------------------------------
in the Right of the Corporation. The Corporation shall indemnify
-------------------------------
each person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
Corporation), by reason of the fact that he is or was, or has
agreed to become, a director or officer of the Corporation, or is
or was serving, or has agreed to serve, at the request of the
Corporation, as a director, officer or trustee of, or in a similar
capacity with, another corporation, partnership, joint venture,
trust or other enterprise (including any employee benefit plan)
(all such persons being referred to hereafter as an "Indemnitee"),
or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees)
judgment, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with
such action, suit or proceeding and any appeal therefrom, if he
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<PAGE>
acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
---- ----------
equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his
conduct was unlawful. Notwithstanding anything to the contrary in
this Article, except as set forth in Section 6 below, the
Corporation shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof)
initiated by the Indemnitee unless the initiation thereof was
approved by the Board of Directors of the Corporation.
2. Actions or Suits by or in the Right of the Corporation.
------------------------------------------------------
The Corporation shall indemnify any Indemnitee who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to
serve, at the request of the Corporation, as a director, officer
or trustee of, or in a similar capacity with, another corporation,
partnership, joint venture, trust or other enterprise (including
any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses
(including attorneys' fees) and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the
Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless
and only to the extent that the Court of Chancery of Delaware or
the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of such liability
but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses
(including attorneys' fees) which the Court of Chancery of
Delaware or such other court shall deem proper.
3. Indemnification for Expenses of Successful Party.
------------------------------------------------
Notwithstanding the other provisions of this Article, to the
extent that an Indemnitee has been successful, on the merits or
otherwise, in defense of any action, suit or proceeding referred
- 5 -
<PAGE>
to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action,
suit or proceeding, he shall be indemnified against all expenses
(including attorneys' fees) actually and reasonably incurred by
him or on his behalf in connection therewith. Without limiting
the foregoing, if any action, suit or proceeding is disposed of,
on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the
Indemnitee, (ii) an adjudication that the Indemnitee was liable to
the Corporation, (iii) a plea of guilty or nolo contendere by the
---- ----------
Indemnitee, (iv) an adjudication that the Indemnitee did not act
in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the
Indemnitee had reasonable cause to believe his conduct was
unlawful, the Indemnitee shall be considered for the purposes
hereof to have been wholly successful with respect thereto.
4. Notification and Defense of Claim. As a condition
---------------------------------
precedent to his right to be indemnified, the Indemnitee must
notify the Corporation in writing as soon as practicable of any
action, suit, proceeding or investigation involving him for which
indemnity will or could be sought. With respect to any action,
suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein
at its own expense and/or to assume the defense thereof at its own
expense, with legal counsel reasonably acceptable to the
Indemnitee. After notice from the Corporation to the Indemnitee
of its election so to assume such defense, the Corporation shall
not be liable to the Indemnitee for any legal or other expenses
subsequently incurred by the Indemnitee in connection with such
claim, other than as provided below in this Section 4. The
Indemnitee shall have the right to employ his own counsel in
connection with such claim, but the fees and expenses of such
counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the
Indemnitee unless (i) the employment of counsel by the Indemnitee
has been authorized by the Corporation, (ii) counsel to the
Indemnitee shall have reasonably concluded that there may be a
conflict of interest or position on any significant issue between
the Corporation and the Indemnitee in the conduct of the defense
of such action or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of counsel for the Indemnitee
shall be at the expense of the Corporation, except as otherwise
expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the
defense of any claim brought by or in the right of the Corporation
or as to which counsel for the Indemnitee shall have reasonably
made the conclusion provided for in clause (ii) above.
- 6 -
<PAGE>
5. Advance of Expenses. Subject to the provisions of
-------------------
Section 6 below, in the event that the Corporation does not assume
the defense pursuant to Section 4 of this Article of any action,
suit, proceeding or investigation of which the Corporation
receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal
therefrom shall be paid by the Corporation in advance of the final
disposition of such matter; provided, however, that the payment of
-------- -------
such expense incurred by an Indemnitee in advance of the final
disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined
that the Indemnitee is not entitled to be indemnified by the
Corporation as authorized in this Article. Such undertaking may
be accepted without reference to the financial ability of the
Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain
-----------------------------
indemnification or advancement of expenses pursuant to Section 1,
2, 3 or 5 of this Article, the Indemnitee shall submit to the
Corporation a written request, including in such request such
documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to
what extent the Indemnitee is entitled to indemnification or
advancement of expenses. Any such indemnification or advancement
of expenses shall be made promptly, and in any event within 60
days after receipt by the Corporation of the written request of
the Indemnitee, unless with respect to requests under Section 1, 2
or 5 the Corporation determines, by clear and convincing evidence,
within such 60-day period that the Indemnitee did not meet the
applicable standard of conduct set forth in Section 1 or 2, as the
case may be. Such determination shall be made in each instance by
(a) a majority vote of a quorum of the directors of the
Corporation consisting of persons who are not at that time parties
to the action, suit or proceeding in question ("disinterested
directors"), (b) if no such quorum is obtainable, a majority vote
of a committee of two or more disinterested directors, (c) a
majority vote of a quorum of the outstanding shares of stock of
all classes entitled to vote for directors, voting as a single
class, which quorum shall consist of stockholders who are not at
that time parties to the action, suit or proceeding in question,
(c) independent legal counsel (who may be regular legal counsel to
the Corporation), or (d) a court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as
--------
granted by this Article shall be enforceable by the Indemnitee in
any court of competent jurisdiction if the Corporation denies such
request, in whole or in part, or if no disposition thereof is made
within the 60-day period referred to above in Section 6. Unless
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<PAGE>
otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advance of
expenses under this Article shall be on the Corporation. Neither
the failure of the Corporation to have made a determination prior
to the commencement of such action that indemnification is proper
in the circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met
such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not met the
applicable standard of conduct. The Indemnitee's expenses
(including attorneys' fees) incurred in connection with
successfully establishing his right to indemnification, in whole
or in part, in any such proceeding shall also be indemnified by
the Corporation.
8. Subsequent Amendment. No amendment, termination or
--------------------
repeal of this Article or of the relevant provisions of the
General Corporation Law of Delaware or any other applicable laws
shall affect or diminish in any way the rights of any Indemnitee
to indemnification under the provisions hereof with respect to any
action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to
the final adoption of such amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of
------------
expenses provided by this Article shall not be deemed exclusive of
any other rights to which an Indemnitee seeking indemnification or
advancement of expenses may be entitled under any law (common or
statutory), agreement or vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for
the Corporation, and shall continue as to an Indemnitee who has
ceased to be a director or officer, and shall inure to the benefit
of the estate, heirs, executors and administrators of the
Indemnitee. Nothing contained in this Article shall be deemed to
prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing
indemnification rights and procedures different from those set
forth in this Article. In addition, the Corporation may, to the
extent authorized from time to time by its Board of Directors,
grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set
forth in this Article.
10. Partial Indemnification. If an Indemnitee is entitled
-----------------------
under any provision of this Article to indemnification by the
Corporation for some or a portion of the expenses (including
attorneys' fees), judgments, fines or amounts paid in settlement
- 8 -
<PAGE>
actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and
any appeal, therefrom but not, however, for the total amount
thereof, the Corporation shall nevertheless indemnify the
Indemnitee for the portion of such expenses (including attorneys'
fees), judgments, fines or amounts paid in settlement to which the
Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain
---------
insurance, at its expense, to protect itself and any director,
officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising
out of his status as such, whether or not the Corporation would
have the power to indemnify such person against such expense,
liability or loss under the General Corporation law of Delaware.
12. Merger or Consolidation. If the Corporation is merged
-----------------------
into or consolidated with another corporation and the Corporation
is not the surviving corporation, the surviving corporation shall
assume the obligations of the Corporation under this Article with
respect to any action, suit, proceeding or investigation arising
out of or relating to any actions, transactions or facts occurring
prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof
--------------
shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify
each Indemnitee as to any expenses (including attorneys' fees)
judgments, fines and amounts paid in settlement in connection with
any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right
of the Corporation, to the fullest extent permitted by any
applicable portion of this Article that shall not have been
invalidated and to the fullest extent permitted by applicable law.
14. Definitions. Terms used herein and defined in
-----------
Section 145(h) and Section 145(i) of the General Corporation Law
of Delaware shall have the respective meanings assigned to such
terms in such Section 145(h) and Section 145(i).
15. Subsequent Legislation. If the General Corporation Law
----------------------
of Delaware is amended after adoption of this Article to expand
further the indemnification permitted to Indemnitees, then the
Corporation shall indemnify such persons to the fullest extent
permitted by the General Corporation Law of Delaware, as so
amended.
- 9 -
<PAGE>
TENTH. The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Amended and
Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and this Amended and Restated
Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ELEVENTH. This Article is inserted for the management of the
business and for the conduct of the affairs of the Corporation.
1. Number of Directors. The number of directors of the
-------------------
Corporation shall not be less than three. The exact number of
directors within the limitations specified in the preceding
sentence shall be fixed from time to time by, or in the manner
provided in, the Corporation's By-Laws.
2. Classes of Directors. The Board of Directors shall be
--------------------
and is divided into three classes: Class I, Class II and Class
III. No one class shall have more than one director more than any
other class. If a fraction is contained in the quotient arrived
at by dividing the designated number of directors by three, then,
if such fraction is one-third, the extra director shall be a
member of Class I, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class I and one of the extra
directors shall be a member of Class II, unless otherwise provided
from time to time by resolution adopted by the Board of Directors.
3. Election of Directors. Elections of directors need not
---------------------
be by written ballot except as and to the extent provided in the
By-Laws of the Corporation.
4. Terms of Office. Each director shall serve for a term
---------------
ending on the date of the third annual meeting following the
annual meeting at which such director was elected; provided, that
--------
each initial director in Class I shall serve for a term ending on
the date of the annual meeting in 1997; each initial director in
Class II shall serve for a term ending on the date of the annual
meeting in 1998; and each initial director in Class III shall
serve for a term ending on the date of the annual meeting in 1999;
and provided further, that the term of each director shall be
-------- -------
subject to the election and qualification of his successor and to
his earlier death, resignation or removal.
5. Allocation of Directors Among Classes in the Event of
-----------------------------------------------------
Increases or Decreases in the Number of Directors. In the event
-------------------------------------------------
of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue
as a director of the class of which he is a member and (ii) the
newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of
- 10 -
<PAGE>
Directors among the three classes of directors so as to ensure
that no one class has more than one director more than any other
class. To the extent possible, consistent with the foregoing
rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates
following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of offices are
to expire at the earliest dates following such allocation, unless
otherwise provided from time to time by resolution adopted by the
Board of Directors.
6. Quorum; Action at Meeting. A majority of the directors
-------------------------
at any time in office shall constitute a quorum for the
transaction of business. In the event one or more of the
directors shall be disqualified to vote at any meeting, then the
required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third
of the number of directors fixed pursuant to Section 1 above
constitute a quorum. If at any meeting of the Board of Directors
there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or
decision done or made by a majority of the directors present at a
meeting duly held at which a quorum is present shall be regarded
as the act of the Board of Directors unless a greater number is
required by law, by the By-Laws of the Corporation or by this
Amended and Restated Certificate of Incorporation.
7. Removal. Directors of the Corporation may be removed
-------
only for cause by the affirmative vote of the holders of at least
two-thirds of the shares of the capital stock of the Corporation
issued and outstanding and entitled to vote.
8. Vacancies. Any vacancy in the Board of Directors,
---------
however occurring, including a vacancy resulting from an
enlargement of the board, shall be filled only by a vote of a
majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to
fill a vacancy shall be elected to hold office until the next
election of the class for which such director shall have been
chosen, subject to the election and qualification of his successor
and to his earlier death, resignation or removal.
9. Stockholder Nominations and Introduction of Business,
----------------------------------------------------
Etc. Advance notice of stockholder nominations for election of
---
directors and other business to be brought by stockholders before
a meeting of stockholders shall be given in the manner provided by
the By-Laws of the Corporation.
10. Amendments to Article. Notwithstanding any other
---------------------
provisions of law, this Amended and Restated Certificate of
- 11 -
<PAGE>
Incorporation or the By-Laws of the Corporation, each as amended,
and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least
seventy-five percent (75%) of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be
required to amend or repeal, or to adopt any provision
inconsistent with, this Article ELEVENTH.
TWELFTH. Stockholders of the Corporation may not take any
action by written consent in lieu of a meeting. Notwithstanding
any other provisions of law, the Amended and Restated Certificate
of Incorporation or the By-Laws of the Corporation, each as
amended, and notwithstanding the fact that a lesser percentage may
be specified by law, the affirmative vote of the holders of at
least seventy-five percent (75%) of the shares of capital stock of
the Corporation issued and outstanding and entitled to vote shall
be required to amend or repeal, or to adopt any provision
inconsistent with, this Article TWELFTH.
THIRTEENTH. Special meetings of stockholders may be called
at any time by only the Chairman of the Board of Directors, the
Chief Executive Officer (or if there is no Chief Executive
Officer, the President) or the Board of Directors. Business
transacted at any special meeting of stockholders shall be limited
to matters relating to the purpose or purposes stated in the
notice of meeting. Notwithstanding any other provision of law,
this Amended and Restated Certificate of Incorporation or the By-
Laws of the Corporation, each as amended, and notwithstanding the
fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent
(75%) of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote shall be required to amend or
repeal, or to adopt any provision inconsistent with, this
Article THIRTEENTH.
- 12 -
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be affixed hereto and this Amended and Restated
Certificate of Incorporation to be signed by its President this
___ day of May, 1996.
CAMBRIDGE HEART, INC.
By:______________________________
Jeffrey M. Arnold
President and Chief
Executive Officer
- 13 -
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT D EXHIBIT 3.3
AMENDED AND RESTATED
BY-LAWS
OF
CAMBRIDGE HEART, INC.
<PAGE>
AMENDED AND RESTATED BY-LAWS
TABLE OF CONTENTS
Page
ARTICLE 1 - Stockholders................................ 1
Section 1.1 Place of Meetings....................... 1
Section 1.2 Annual Meeting.......................... 1
Section 1.3 Special Meetings........................ 1
Section 1.4 Notice of Meetings...................... 1
Section 1.5 Voting List............................. 2
Section 1.6 Quorum.................................. 2
Section 1.7 Adjournments............................ 2
Section 1.8 Voting and Proxies...................... 2
Section 1.9 Action at Meeting....................... 3
Section 1.10 Nomination of Directors................. 3
Section 1.11 Notice of Business at Annual Meetings... 4
Section 1.12 Action without Meeting.................. 5
Section 1.13 Organization............................ 5
ARTICLE 2 - Directors................................... 5
Section 2.1 General Powers.......................... 5
Section 2.2 Number; Election and Qualification...... 5
Section 2.3 Classes of Directors.................... 6
Section 2.4 Terms of Office......................... 6
Section 2.5 Allocation of Directors Among Classes
in the Event of Increases or
Decreases in the Number of Directors.... 6
Section 2.6 Vacancies............................... 7
Section 2.7 Resignation............................. 7
Section 2.8 Regular Meetings........................ 7
Section 2.9 Special Meetings........................ 7
Section 2.10 Notice of Special Meetings.............. 7
Section 2.11 Meetings by Telephone Conference
Calls................................. 8
Section 2.12 Quorum.................................. 8
Section 2.13 Action at Meeting....................... 8
Section 2.14 Action by Consent....................... 8
Section 2.15 Removal................................. 8
Section 2.16 Committees.............................. 8
Section 2.17 Compensation of Directors............... 9
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<PAGE>
Page
ARTICLE 3 - Officers.................................... 9
Section 3.1 Enumeration............................. 9
Section 3.2 Election................................ 9
Section 3.3 Qualification........................... 9
Section 3.4 Tenure.................................. 9
Section 3.5 Resignation and Removal................. 10
Section 3.6 Vacancies............................... 10
Section 3.7 Chairman of the Board and Vice
Chairman of the Board................. 10
Section 3.8 President............................... 10
Section 3.9 Vice Presidents......................... 11
Section 3.10 Secretary and Assistant Secretaries..... 11
Section 3.11 Treasurer and Assistant Treasurers...... 11
Section 3.12 Salaries................................ 12
ARTICLE 4 - Capital Stock............................... 12
Section 4.1 Issuance of Stock....................... 12
Section 4.2 Certificates of Stock................... 12
Section 4.3 Transfers............................... 13
Section 4.4 Lost, Stolen or Destroyed
Certificates.......................... 13
Section 4.5 Record Date............................. 13
ARTICLE 5 - General Provisions.......................... 14
Section 5.1 Fiscal Year............................. 14
Section 5.2 Corporate Seal.......................... 14
Section 5.3 Waiver of Notice........................ 14
Section 5.4 Voting of Securities.................... 14
Section 5.5 Evidence of Authority................... 14
Section 5.6 Certificate of Incorporation............ 14
Section 5.7 Transactions with Interested Parties.... 15
Section 5.8 Severability............................ 15
Section 5.9 Pronouns................................ 15
ARTICLE 6 - Amendments.................................. 16
Section 6.1 By the Board of Directors............... 16
Section 6.2 By the Stockholders..................... 16
Section 6.3 Certain Provisions...................... 16
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<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
CAMBRIDGE HEART, INC.
ARTICLE 1 - Stockholders
------------------------
1.1 Place of Meetings. All meetings of stockholders shall
-----------------
be held at such place within or without the State of Delaware as
may be designated from time to time by the Board of Directors or
the President or, if not so designated, at the registered office
of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for
--------------
the election of directors and for the transaction of such other
business as may properly be brought before the meeting shall be
held within six months after the end of each fiscal year of the
corporation on a date to be fixed by the Board of Directors or the
President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed
by the Board of Directors or the President and stated in the
notice of the meeting. If no annual meeting is held in accordance
with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as convenient. If no
annual meeting is held in accordance with the foregoing
provisions, a special meeting may be held in lieu of the annual
meeting, and any action taken at that special meeting shall have
the same effect as if it had been taken at the annual meeting, and
in such case all references in these By-Laws to the annual meeting
of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may
----------------
be called at any time by the Chairman of the Board of Directors,
the Chief Executive Officer (or, if there is no Chief Executive
Officer, the President) or the Board of Directors. Business
transacted at any special meeting of stockholders shall be limited
to matters relating to the purpose or purposes stated in the
notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by
------------------
law, written notice of each meeting of stockholders, whether
annual or special, shall be given not less than 10 nor more than
60 days before the date of the meeting to each stockholder
entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice
<PAGE>
of a special meeting shall state, in addition, the purpose or
purposes for which the meeting is called. If mailed, notice is
given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 Voting List. The officer who has charge of the stock
-----------
ledger of the corporation shall prepare, at least 10 days before
every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours,
for a period of at least 10 days prior to the meeting, at a place
within the city where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting
during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the
------
Certificate of Incorporation or these By-Laws, the holders of a
majority of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote at the meeting,
present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be
------------
adjourned to any other time and to any other place at which a
meeting of stockholders may be held under these By-Laws by the
stockholders present or represented at the meeting and entitled to
vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as
Secretary of such meeting. It shall not be necessary to notify
any stockholder of any adjournment of less than 30 days if the
time and place of the adjourned meeting are announced at the
meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting.
At the adjourned meeting, the corporation may transact any
business which might have been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one
------------------
vote for each share of stock entitled to vote held of record by
such stockholder and a proportionate vote for each fractional
share so held, unless otherwise provided by the General
Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-Laws. Each stockholder of record
entitled to vote at a meeting of stockholders, or to express
consent or dissent to corporate action in writing without a
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<PAGE>
meeting, may vote or express such consent or dissent in person or
may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent
and delivered to the Secretary of the corporation. No such proxy
shall be voted or acted upon after three years from the date of
its execution, unless the proxy expressly provides for a longer
period.
1.9 Action at Meeting. When a quorum is present at any
-----------------
meeting, the holders of a majority of the stock present or
represented and voting on a matter (or if there are two or more
classes of stock entitled to vote as separate classes, then in the
case of each such class, the holders of a majority of the stock of
that class present or represented and voting on a matter) shall
decide any matter to be voted upon by the stockholders at such
meeting, except when a different vote is required by express
provision of law, the Certificate of Incorporation or these
By-Laws. Any election by stockholders shall be determined by a
plurality of the votes cast by the stockholders entitled to vote
at the election.
1.10 Nomination of Directors. Only persons who are
-----------------------
nominated in accordance with the following procedures shall be
eligible for election as directors. Nomination for election to
the Board of Directors of the corporation at a meeting of
stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election
of directors at such meeting who complies with the notice
procedures set forth in this Section 1.10. Such nominations,
other than those made by or on behalf of the Board of Directors,
shall be made by notice in writing delivered or mailed by first
class United States mail, postage prepaid, to the Secretary, and
received not less than 60 days nor more than 90 days prior to such
meeting; provided, however, that if less than 70 days' notice or
prior public disclosure of the date of the meeting is given to
stockholders, such nomination shall have been mailed or delivered
to the Secretary not later than the close of business on the 10th
day following the date on which the notice of the meeting was
mailed or such public disclosure was made, whichever occurs first.
Such notice shall set forth (a) as to each proposed nominee (i)
the name, age, business address and, if known, residence address
of each such nominee, (ii) the principal occupation or employment
of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and
(iv) any other information concerning the nominee that must be
disclosed as to nominees in proxy solicitations pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended (including such person's written consent to be named as a
nominee and to serve as a director if elected); and (b) as to the
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<PAGE>
stockholder giving the notice (i) the name and address, as they
appear on the corporation's books, of such stockholder and (ii)
the class and number of shares of the corporation which are
beneficially owned by such stockholder. The corporation may
require any proposed nominee to furnish such other information as
may reasonably be required by the corporation to determine the
eligibility of such proposed nominee to serve as a director of the
corporation.
The chairman of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and if he should
so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
1.11 Notice of Business at Annual Meetings. At an annual
-------------------------------------
meeting of the stockholders, only such business shall be conducted
as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly
brought before an annual meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder,
if such business relates to the election of directors of the
corporation, the procedures in Section 1.10 must be complied with.
If such business relates to any other matter, the stockholder must
have given timely notice thereof in writing to the Secretary. To
be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the corporation
not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days'
notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on
the 10th day following the date on which such notice of the date
of the meeting was mailed or such public disclosure was made,
whichever occurs first. A stockholder's notice to the Secretary
shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (a) a brief description of the
business desired to be brought before the annual meeting and the
reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (c) the class and
number of shares of the corporation which are beneficially owned
by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in these
By-Laws to the contrary, no business shall be conducted at any
-4-
<PAGE>
annual meeting except in accordance with the procedures set forth
in this Section 1.11 and except that any stockholder proposal
which complies with Rule 14a-8 of the proxy rules (or any
successor provision) promulgated under the Securities Exchange Act
of 1934, as amended, and is to be included in the corporation's
proxy statement for an annual meeting of stockholders shall be
deemed to comply with the requirements of this Section 1.11.
The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the
provisions of this Section 1.11, and if he should so determine,
the chairman shall so declare to the meeting that any such
business not properly brought before the meeting shall not be
transacted.
1.12 Action without Meeting. Stockholders may not take any
----------------------
action by written consent in lieu of a meeting.
1.13 Organization. The Chairman of the Board, or in his
------------
absence the Vice Chairman of the Board designated by the Chairman
of the Board, or the President, in the order named, shall call
meetings of the stockholders to order, and shall act as chairman
of such meeting; provided, however, that the Board of Directors
--------
may appoint any stockholder to act as chairman of any meeting in
the absence of the Chairman of the Board. The Secretary of the
corporation shall act as secretary at all meetings of the
stockholders; but in the absence of the Secretary at any meeting
of the stockholders, the presiding officer may appoint any person
to act as secretary of the meeting.
ARTICLE 2 - Directors
---------------------
2.1 General Powers. The business and affairs of the
--------------
corporation shall be managed by or under the direction of a Board
of Directors, who may exercise all of the powers of the
corporation except as otherwise provided by law, the Certificate
of Incorporation or these By-Laws. In the event of a vacancy in
the Board of Directors, the remaining directors, except as
otherwise provided by law, may exercise the powers of the full
Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of
----------------------------------
directors which shall constitute the whole Board of Directors
shall be determined by resolution of the Board of Directors, but
in no event shall be less than three. The number of directors may
be decreased at any time and from time to time by a majority of
-5-
<PAGE>
the directors then in office, but only to eliminate vacancies
existing by reason of the death, resignation, removal or
expiration of the term of one or more directors. The directors
shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election.
Directors need not be stockholders of the corporation.
2.3 Classes of Directors. The Board of Directors shall be
--------------------
and is divided into three classes: Class I, Class II and
Class III. No one class shall have more than one director more
than any other class. If a fraction is contained in the quotient
arrived at by dividing the designated number of directors by
three, then, if such fraction is one-third, the extra director
shall be a member of Class I, and if such fraction is two-thirds,
one of the extra directors shall be a member of Class I and one of
the extra directors shall be a member of Class II, unless
otherwise provided from time to time by resolution adopted by the
Board of Directors.
2.4 Terms of Office. Each director shall serve for a term
---------------
ending on the date of the third annual meeting following the
annual meeting at which such director was elected; provided, that
--------
each initial director in Class I shall serve for a term ending on
the date of the annual meeting of stockholders in 1997; each
initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 1998; and each
initial director in Class III shall serve for a term ending on the
date of the annual meeting of stockholders in 1999; and provided
further, that the term of each director shall be subject to the
-------
election and qualification of his successor and to his earlier
death, resignation or removal.
2.5 Allocation of Directors Among Classes in the Event of
-----------------------------------------------------
Increases or Decreases in the Number of Directors. In the event
-------------------------------------------------
of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue
as a director of the class of which he is a member and (ii) the
newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of
Directors among the three classes of directors so as to ensure
that no one class has more than one director more than any other
class. To the extent possible, consistent with the foregoing
rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates
following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of offices are
to expire at the earliest dates following such allocation, unless
otherwise provided from time to time by resolution adopted by the
Board of Directors.
-6-
<PAGE>
2.6 Vacancies. Any vacancy in the Board of Directors,
---------
however occurring, including a vacancy resulting from an
enlargement of the Board, shall be filled only by vote of a
majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to
fill a vacancy shall be elected for the unexpired term of his
predecessor in office, and a director chosen to fill a position
resulting from an increase in the number of directors shall hold
office until the next election of the class for which such
director shall have been chosen, subject to the election and
qualification of his successor and to his earlier death,
resignation or removal.
2.7 Resignation. Any director may resign by delivering his
-----------
written resignation to the corporation at its principal office or
to the President or Secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at
some other time or upon the happening of some other event.
2.8 Regular Meetings. Regular meetings of the Board of
----------------
Directors may be held without notice at such time and place,
either within or without the State of Delaware, as shall be
determined from time to time by the Board of Directors; provided
that any director who is absent when such a determination is made
shall be given notice of the determination. A regular meeting of
the Board of Directors may be held without notice immediately
after and at the same place as the annual meeting of stockholders.
2.9 Special Meetings. Special meetings of the Board of
----------------
Directors may be held at any time and place, within or without the
State of Delaware, designated in a call by the Chairman of the
Board, President, two or more directors, or by one director in the
event that there is only a single director in office.
2.10 Notice of Special Meetings. Notice of any special
--------------------------
meeting of directors shall be given to each director by the
Secretary or by the officer or one of the directors calling the
meeting. Notice shall be duly given to each director (i) by
giving notice to such director in person or by telephone at least
24 hours in advance of the meeting, (ii) by sending a telegram,
telecopy, or telex, or delivering written notice by hand, to his
last known business or home address at least 24 hours in advance
of the meeting, or (iii) by mailing written notice to his last
known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purposes of the meeting.
-7-
<PAGE>
2.11 Meetings by Telephone Conference Calls. Directors or
--------------------------------------
any members of any committee designated by the directors may
participate in a meeting of the Board of Directors or such
committee by means of conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other, and
participation by such means shall constitute presence in person at
such meeting.
2.12 Quorum. A majority of the total number of the whole
------
Board of Directors shall constitute a quorum at all meetings of
the Board of Directors. In the event one or more of the directors
shall be disqualified to vote at any meeting, then the required
quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than
one-third (1/3) of the number so fixed constitute a quorum. In
the absence of a quorum at any such meeting, a majority of the
directors present may adjourn the meeting from time to time
without further notice other than announcement at the meeting,
until a quorum shall be present.
2.13 Action at Meeting. At any meeting of the Board of
-----------------
Directors at which a quorum is present, the vote of a majority of
those present shall be sufficient to take any action, unless a
different vote is specified by law, the Certificate of
Incorporation or these By-Laws.
2.14 Action by Consent. Any action required or permitted to
-----------------
be taken at any meeting of the Board of Directors or of any
committee of the Board of Directors may be taken without a
meeting, if all members of the Board or committee, as the case may
be, consent to the action in writing, and the written consents are
filed with the minutes of proceedings of the Board or committee.
2.15 Removal. Directors of the corporation may be removed
-------
only for cause by the affirmative vote of the holders of two-
thirds of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote.
2.16 Committees. The Board of Directors may, by resolution
----------
passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the
directors of the corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
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<PAGE>
Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided
in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Dela-
ware, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and
affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it.
Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as
the Board of Directors may otherwise determine, any committee may
make rules for the conduct of its business, but unless otherwise
provided by the directors or in such rules, its business shall be
conducted as nearly as possible in the same manner as is provided
in these By-Laws for the Board of Directors.
2.17 Compensation of Directors. Directors may be paid such
-------------------------
compensation for their services and such reimbursement for
expenses of attendance at meetings as the Board of Directors may
from time to time determine. No such payment shall preclude any
director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving
compensation for such service.
ARTICLE 3 - Officers
--------------------
3.1 Enumeration. The officers of the corporation shall
-----------
consist of a President, a Secretary, a Treasurer and such other
officers with such other titles as the Board of Directors shall
determine, including a Chairman of the Board, a Vice-Chairman of
the Board, and one or more Vice Presidents, Assistant Treasurers,
and Assistant Secretaries. The Board of Directors may appoint
such other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall
--------
be elected annually by the Board of Directors at its first meeting
following the annual meeting of stockholders. Other officers may
be appointed by the Board of Directors at such meeting or at any
other meeting.
3.3 Qualification. No officer need be a stockholder. Any
-------------
two or more offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the
------
Certificate of Incorporation or by these By-Laws, each officer
shall hold office until his successor is elected and qualified,
-9-
<PAGE>
unless a different term is specified in the vote choosing or
appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by
-----------------------
delivering his written resignation to the corporation at its
principal office or to the President or Secretary. Such
resignation shall be effective upon receipt unless it is specified
to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without
cause, by vote of a majority of the entire number of directors
then in office.
Except as the Board of Directors may otherwise determine, no
officer who resigns or is removed shall have any right to any
compensation as an officer for any period following his resigna-
tion or removal, or any right to damages on account of such
removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a
duly authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy
---------
occurring in any office for any reason and may, in its discretion,
leave unfilled for such period as it may determine any offices
other than those of President, Treasurer and Secretary. Each such
successor shall hold office for the unexpired term of his
predecessor and until his successor is elected and qualified, or
until his earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board.
----------------------------------------------------
The Board of Directors may appoint a Chairman of the Board. If
the Board of Directors appoints a Chairman of the Board, he shall
perform such duties and possess such powers as are assigned to him
by the Board of Directors. If the Board of Directors appoints a
Vice Chairman of the Board, he shall, in the absence or disability
of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other
duties and possess such other powers as may from time to time be
vested in him by the Board of Directors.
3.8 President. The President shall, subject to the
---------
direction of the Board of Directors, have general charge and
supervision of the business of the corporation. Unless otherwise
provided by the Board of Directors, he shall preside at all
meetings of the stockholders, if he is a director, at all meetings
of the Board of Directors. Unless the Board of Directors has
designated the Chairman of the Board or another officer as Chief
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<PAGE>
Executive Officer, the President shall be the Chief Executive
Officer of the corporation. The President shall perform such
other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such
---------------
duties and possess such powers as the Board of Directors or the
President may from time to time prescribe. In the event of the
absence, inability or refusal to act of the President, the Vice
President (or if there shall be more than one, the Vice Presidents
in the order determined by the Board of Directors) shall perform
the duties of the President and when so performing shall have all
the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice Presi-
dent the title of Executive Vice President, Senior Vice President
or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary
-----------------------------------
shall perform such duties and shall have such powers as the Board
of Directors or the President may from time to time prescribe. In
addition, the Secretary shall perform such duties and have such
powers as are incident to the office of the secretary, including
without limitation the duty and power to give notices of all
meetings of stockholders and special meetings of the Board of
Directors, to attend all meetings of stockholders and the Board of
Directors and keep a record of the proceedings, to maintain a
stock ledger and prepare lists of stockholders and their addresses
as required, to be custodian of corporate records and the cor-
porate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess
such powers as the Board of Directors, the President or the
Secretary may from time to time prescribe. In the event of the
absence, inability or refusal to act of the Secretary, the Assis-
tant Secretary (or if there shall be more than one, the Assistant
Secretaries in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at
any meeting of stockholders or directors, the person presiding at
the meeting shall designate a temporary secretary to keep a record
of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer
----------------------------------
shall perform such duties and shall have such powers as may from
time to time be assigned to him by the Board of Directors or the
President. In addition, the Treasurer shall perform such duties
and have such powers as are incident to the office of treasurer,
including without limitation the duty and power to keep and be
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<PAGE>
responsible for all funds and securities of the corporation, to
deposit funds of the corporation in depositories selected in
accordance with these By-Laws, to disburse such funds as ordered
by the Board of Directors, to make proper accounts of such funds,
and to render as required by the Board of Directors statements of
all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and
possess such powers as the Board of Directors, the President or
the Treasurer may from time to time prescribe. In the event of
the absence, inability or refusal to act of the Treasurer, the
Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the
Treasurer.
3.12 Salaries. Officers of the corporation shall be
--------
entitled to such salaries, compensation or reimbursement as shall
be fixed or allowed from time to time by the Board of Directors.
ARTICLE 4 - Capital Stock
-------------------------
4.1 Issuance of Stock. Unless otherwise voted by the
-----------------
stockholders and subject to the provisions of the Certificate of
Incorporation, the whole or any part of any unissued balance of
the authorized capital stock of the corporation or the whole or
any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold,
transferred or otherwise disposed of by vote of the Board of
Directors in such manner, for such consideration and on such terms
as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the
---------------------
corporation shall be entitled to have a certificate, in such form
as may be prescribed by law and by the Board of Directors,
certifying the number and class of shares owned by him in the
corporation. Each such certificate shall be signed by, or in the
name of the corporation by, the Chairman or Vice Chairman, if any,
of the Board of Directors, or the President or a Vice President,
and the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary of the corporation. Any or all of the
signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorpora-
tion, the By-Laws, applicable securities laws or any agreement
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<PAGE>
among any number of stockholders or among such holders and the
corporation shall have conspicuously noted on the face or back of
the certificate either the full text of the restriction or a
statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules
---------
and regulations adopted by the Board of Directors, and subject to
applicable law, shares of stock may be transferred on the books of
the corporation by the surrender to the corporation or its trans-
fer agent of the certificate representing such shares properly
endorsed or accompanied by a written assignment or power of
attorney properly executed, and with such proof of authority or
the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required
by law, by the Certificate of Incorporation or by these By-Laws,
the corporation shall be entitled to treat the record holder of
stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote
with respect to such stock, regardless of any transfer, pledge or
other disposition of such stock until the shares have been
transferred on the books of the corporation in accordance with the
requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The
--------------------------------------
corporation may issue a new certificate of stock in place of any
previously issued certificate alleged to have been lost, stolen,
or destroyed, upon such terms and conditions as the Board of
Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such
indemnity as the Board of Directors may require for the protection
of the corporation or any transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance
-----------
a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any meeting of stockholders,
or entitled to receive payment of any dividend or other
distribution or allotment of any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other
lawful action. Such record date shall not be more than 60 nor
less than 10 days before the date of such meeting, nor more than
60 days prior to any other action to which such record date
relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day before
the day on which notice is given, or, if notice is waived, at the
close of business on the day before the day on which the meeting
is held. The record date for determining stockholders for any
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<PAGE>
other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating to
such purpose.
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
ARTICLE 5 - General Provisions
------------------------------
5.1 Fiscal Year. Except as from time to time otherwise
-----------
designated by the Board of Directors, the fiscal year of the
corporation shall begin on the first day of January in each year
and end on the last day of December in each year.
5.2 Corporate Seal. The corporate seal shall be in such
--------------
form as shall be approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is
----------------
required to be given by law, by the Certificate of Incorporation
or by these By-Laws, a waiver of such notice either in writing
signed by the person entitled to such notice or such person's duly
authorized attorney, or by telegraph, cable or any other available
method, whether before, at or after the time stated in such
waiver, or the appearance of such person or persons at such
meeting in person or by proxy, shall be deemed equivalent to such
notice.
5.4 Voting of Securities. Except as the directors may
--------------------
otherwise designate, the President or Treasurer may waive notice
of, and act as, or appoint any person or persons to act as, proxy
or attorney-in-fact for this corporation (with or without power of
substitution) at, any meeting of stockholders or shareholders of
any other corporation or organization, the securities of which may
be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary,
---------------------
or an Assistant Secretary, or a temporary Secretary, as to any
action taken by the stockholders, directors, a committee or any
officer or representative of the corporation shall as to all
persons who rely on the certificate in good faith be conclusive
evidence of such action.
5.6 Certificate of Incorporation. All references in these
----------------------------
By-Laws to the Certificate of Incorporation shall be deemed to
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<PAGE>
refer to the Certificate of Incorporation of the corporation, as
amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or
------------------------------------
transaction between the corporation and one or more of the
directors or officers, or between the corporation and any other
corporation, partnership, association, or other organization in
which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer
is present at or participates in the meeting of the Board of
Directors or a committee of the Board of Directors which autho-
rizes the contract or transaction or solely because his or their
votes are counted for such purpose, if:
(1) The material facts as to his relationship or
interest and as to the contract or transaction are disclosed
or are known to the Board of Directors or the committee, and
the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested
directors be less than a quorum;
(2) The material facts as to his relationship or
interest and as to the contract or transaction are disclosed
or are known to the stockholders entitled to vote thereon,
and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee of the Board
of Directors, or the stockholders.
Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of
------------
these By-Laws is for any reason inapplicable, illegal or ineffec-
tive shall not affect or invalidate any other provision of these
By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be
--------
deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the person or persons may require.
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<PAGE>
ARTICLE 6 - Amendments
----------------------
6.1 By the Board of Directors. These By-Laws may be
-------------------------
altered, amended or repealed or new by-laws may be adopted by the
affirmative vote of a majority of the directors present at any
regular or special meeting of the Board of Directors at which a
quorum is present.
6.2 By the Stockholders. Except as otherwise provided in
-------------------
Section 6.3, these By-Laws may be altered, amended or repealed or
new by-laws may be adopted by the affirmative vote of the holders
of a majority of the shares of the capital stock of the
corporation issued and outstanding and entitled to vote at any
regular or special meeting of stockholders, provided notice of
such alteration, amendment, repeal or adoption of new by-laws
shall have been stated in the notice of such regular or special
meeting.
6.3 Certain Provisions. Notwithstanding any other
------------------
provision of law, the Certificate of Incorporation or these By-
Laws, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least
seventy-five percent (75%) of the shares of the capital stock of
the corporation issued and outstanding and entitled to vote shall
be required to amend or repeal, or to adopt any provision
inconsistent with Section 1.3, Section 1.10, Section 1.11,
Section 1.12, Section 1.13, Article 2 or Article 6 of these By-
Laws.
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<PAGE>
EXHIBIT 10.2
CAMBRIDGE HEART, INC.
1996 EQUITY INCENTIVE PLAN
--------------------------
1. Purpose
-------
The purpose of this 1996 Equity Incentive Plan (the "Plan") of Cambridge
Heart, Inc., a Delaware corporation (the "Company"), is to advance the interests
of the Company by enhancing its ability to attract and retain key employees,
consultants and others who are in a position to contribute to the Company's
future growth and success.
2. Definitions
-----------
"Award" means any Option, Stock Appreciation Right, Performance Shares,
-----
Restricted Stock or Unrestricted Stock awarded under the Plan.
"Board" means the Board of Directors of the Company.
-----
"Code" means the Internal Revenue Code of 1986, as amended from time to
----
time.
"Committee" means a committee of not less than two members of the Board
---------
appointed by the Board to administer the Plan, provided that if and when the
Common Stock is registered under Section 12 of the Exchange Act, each member of
the Committee shall be a "disinterested person" within the meaning of Rule 16b-3
under the Exchange Act ("Rule 16b-3").
"Common Stock" means Common Stock, par value $.001 per share, of the
------------
Company.
"Company" means Cambridge Heart, Inc. and, except where the context
-------
otherwise requires, all present and future subsidiaries of Cambridge Heart, Inc.
as defined in Section 424(f) of the Code.
"Designated Beneficiary" means the beneficiary designated by a Participant,
----------------------
in a manner determined by the Board, to receive amounts due or exercise rights
of the Participant in the event of the Participant's death. In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time.
<PAGE>
"Fair Market Value" means, with respect to Common Stock or any other
-----------------
property, the fair market value of such property as determined by the Board in
good faith or in the manner established by the Board from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
----------------------
awarded to a Participant under Section 6 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common
-------------------------
Stock awarded to a Participant under Section 6 which is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
------
"Participant" means a person selected by the Board to receive an Award
-----------
under the Plan.
"Performance Shares" mean shares of Common Stock which may be earned by the
------------------
achievement of performance goals established for a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Exchange Act
----------------
or any successor provision.
"Restricted Period" means the period of time selected by the Board during
-----------------
which shares subject to a Restricted Stock Award may be repurchased by or
forfeited to the Company.
"Restricted Stock" means shares of Common Stock awarded to a Participant
----------------
under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
------------------------
Fair Market Value of shares of Common Stock over the exercise price of the Award
granted to a Participant under Section 7.
"Unrestricted Stock" means shares of Common Stock awarded to a Participant
------------------
under Section 9(c).
3. Administration
--------------
The Plan will be administered by the Board. The Board shall have authority
to make Awards and to adopt, amend and repeal such administrative rules,
guidelines and practices relating to the Plan as it shall deem advisable from
time to time, and to interpret the provisions of the Plan. The Board's decisions
shall
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<PAGE>
be final and binding. No member of the Board shall be liable for any action or
determination relating to the Plan made in good faith. To the extent permitted
by applicable law, the Board may delegate to one or more executive officers of
the Company the power to make Awards to Participants who are not Reporting
Persons and all determinations under the Plan with respect thereto, provided
that the Board shall fix the maximum amount of such Awards to be made by such
executive officers and a maximum amount for any one Participant. To the extent
permitted by applicable law, the Board may appoint a Committee to administer the
Plan and, in such event, all references to the Board in the Plan shall mean such
Committee or the Board. All decisions by the Board or the Committee pursuant to
the Plan shall be final and binding on all persons having or claiming any
interest in the Plan or in any Award.
4. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors who are expected to contribute to the Company's future growth and
success, other than persons who have irrevocably elected not to be eligible, are
eligible to be Participants in the Plan. Incentive Stock Options may be awarded
only to persons eligible to receive Incentive Stock Options under the Code.
5. Stock Available for Awards
--------------------------
(a) Subject to adjustment under subsection (b) below, Awards may be made
under the Plan for up to 1,000,000 shares of Common Stock. If any Award in
respect of shares of Common Stock expires or is terminated unexercised or is
forfeited for any reason or settled in a manner that results in fewer shares
outstanding than were initially awarded, the shares subject to such Award or so
surrendered, as the case may be, to the extent of such expiration, termination,
forfeiture or decrease, shall again be available for award under the Plan,
subject, however, in the case of Incentive Stock Options, to any limitation
required under the Code and provided that shares made available pursuant to this
sentence shall be available for Awards to Reporting Persons only to the extent
consistent with Rule 16b-3. Shares issued under the Plan may consist in whole or
in part of authorized but unissued shares or treasury shares.
(b) In the event that the Board, in its sole discretion, determines that
any stock dividend, extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination or other
similar transaction affects the Common Stock such that an adjustment is required
in order to
-3-
<PAGE>
preserve the benefits or potential benefits intended to be made available under
the Plan, then the Board, subject, in the case of Incentive Stock Options, to
any limitation required under the Code, shall equitably adjust any or all of (i)
the number and kind of shares in respect of which Awards may be made under the
Plan, (ii) the number and kind of shares subject to outstanding Awards, and
(iii) the award, exercise or conversion price with respect to any of the
foregoing, and if considered appropriate, the Board may make provision for a
cash payment with respect to an outstanding Award, provided that after an IPO,
the number of shares subject to any Award shall always be a whole number.
(c) The Board may grant Awards under the Plan in substitution for stock and
stock based awards held by employees of another corporation who concurrently
become employees of the Company as a result of a merger or consolidation of the
employing corporation with the Company (or a subsidiary of the Company) or the
acquisition by the Company (or a subsidiary of the Company) of property or stock
of the employing corporation. The substitute Awards shall be granted on such
terms and conditions as the Board considers appropriate in the circumstances.
(d) Subject to adjustment under Section 5(b), the maximum number of shares
with respect to which an Award may be granted to any employee under the Plan
shall not exceed 300,000 per calendar year. For purposes of calculating such
maximum number, (a) an Award shall continue to be treated as outstanding
notwithstanding its repricing, cancellation or expiration and (b) the repricing
of an outstanding Award or issuance of a new Award in substitution for a
cancelled Award shall be deemed to constitute the grant of a new additional
Award separate from the original grant of the Award that is repriced or
cancelled.
6. Stock Options
-------------
(a) General
-------
(i) Subject to the provisions of the Plan, the Board may award
Incentive Stock Options and Nonstatutory Stock Options, and determine the number
of shares of Common Stock to be covered by each Option, the option price of such
Option and the conditions and limitations applicable to the exercise of such
Option. The terms and conditions of Incentive Stock Options shall be subject to
and comply with Section 422 of the Code, or any successor provision, and any
regulations thereunder.
(ii) The Board shall establish the exercise price at the time each
Option is awarded. In the case of Incentive Stock
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<PAGE>
Options, such price shall not be less than 100% of the Fair Market Value of the
Common Stock on the date of award.
(iii) Each Option shall be exercisable at such times and subject to
such terms and conditions as the Board may specify in the applicable Award or
thereafter. The Board may impose such conditions with respect to the exercise of
Options, including conditions relating to applicable federal or state securities
laws, as it considers necessary or advisable.
(iv) Options granted under the Plan may provide for the payment of
the exercise price by delivery of cash or check in an amount equal to the
exercise price of such Options or, to the extent permitted by the Board at or
after the award of the Option, by (A) delivery of shares of Common Stock owned
by the optionee for at least six months (or such shorter period as is approved
by the Board), valued at their Fair Market Value, (B) delivery of a promissory
note of the optionee to the Company on terms determined by the Board, (C)
delivery of an irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price or delivery of irrevocable
instructions to a broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price, (D) payment of such other lawful
consideration as the Board may determine, or (E) any combination of the
foregoing.
(v) The Board may provide for the automatic award of an Option upon
the delivery of shares to the Company in payment of the exercise price of an
Option for up to the number of shares so delivered.
(vi) The Board may at any time accelerate the time at which all or
any part of an Option may be exercised.
(b) Incentive Stock Options
-----------------------
Options granted under the Plan which are intended to be Incentive
Stock Options shall be subject to the following additional terms and conditions:
(i) All Incentive Stock Options granted under the Plan shall, at the
time of grant, be specifically designated as such in the option agreement
covering such Incentive Stock Options. The Option exercise period shall not
exceed ten years from the date of grant.
(ii) If any employee to whom an Incentive Stock Option is to be
granted under the Plan is, at the time of the grant of such option, the owner of
stock possessing more than 10% of the
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<PAGE>
total combined voting power of all classes of stock of the Company (after taking
into account the attribution of stock ownership rule of Section 424(b) and of
the Code), then the following special provisions shall be applicable to the
Incentive Stock Option granted to such individual:
(x) The purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the Fair Market
Value of one share of Common Stock at the time of grant; and
(y) The option exercise period shall not exceed five years from
the date of grant.
(iii) For so long as the Code shall so provide, options granted to
any employee under the Plan (and any other incentive stock option plans of the
Company) which are intended to constitute Incentive Stock Options shall not
constitute Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar year for
shares of Common Stock with an aggregate Fair Market Value (determined as of the
respective date or dates of grant) of more than $100,000.
(iv) No Incentive Stock Option may be exercised unless, at the time
of such exercise, the Participant is, and has been continuously since the date
of grant of his or her Option, employed by the Company, except that:
(x) an Incentive Stock Option may be exercised within the period
of three months after the date the Participant ceases to be an employee of
the Company (or within such lesser period as may be specified in the
applicable option agreement), provided, that the agreement with respect to
--------
such Option may designate a longer exercise period and that the exercise
after such three-month period shall be treated as the exercise of a
Nonstatutory Stock Option under the Plan;
(y) if the Participant dies while in the employ of the Company,
or within three months after the Participant ceases to be such an employee,
the Incentive Stock Option may be exercised by the Participant's Designated
Beneficiary within the period of one year after the date of death (or
within such lesser period as may be specified in the applicable Option
agreement); and
(z) if the Participant becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor
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<PAGE>
provision thereto) while in the employ of the Company, the Incentive Stock
Option may be exercised within the period of one year after the date of
death (or within such lesser period as may be specified in the applicable
Option agreement).
For all purposes of the Plan and any Option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
(v) Incentive Stock Options shall not be assignable or transferable
by the person to whom they are granted, either voluntarily or by operation of
law, except by will or the laws of descent and distribution, and, during the
life of the optionee, shall be exercisable only by the optionee.
7. Stock Appreciation Rights
-------------------------
(a) The Board may grant SARs entitling recipients on exercise of the SAR to
receive an amount, in cash or Common Stock or a combination thereof (such form
to be determined by the Board), determined in whole or in part by reference to
appreciation in the Fair Market Value of the Common Stock between the date of
the Award and the exercise of the Award. A SAR shall entitle the Participant to
receive, with respect to each share of Common Stock as to which the SAR is
exercised, the excess of the share's Fair Market Value on the date of exercise
over its Fair Market Value on the date the SAR was granted. The Board may also
grant SARs that provide that, following a change in control of the Company (as
defined by the Board at the time of the Award), the holder of such SAR will be
entitled to receive, with respect to each share of Common Stock subject to the
SAR, an amount equal to the excess of a specified value (which may include an
average of values) for a share of Common Stock during a period preceding such
change in control over the Fair Market Value of a share of Common Stock on the
date the SAR was granted.
(b) SARs may be granted in tandem with, or independently of, Options
granted under the Plan. A SAR granted in tandem with an Option which is not an
Incentive Stock Option may be granted either at or after the time the Option is
granted. A SAR granted in tandem with an Incentive Stock Option may be granted
only at the time the Option is granted.
(c) When SARs are granted in tandem with Options, the following provisions
will apply:
-7-
<PAGE>
(i) The SAR will be exercisable only at such time or times, and to the
extent, that the related Option is exercisable and will be exercisable in
accordance with the procedure required for exercise of the related Option.
(ii) The SAR will terminate and no longer be exercisable upon the
termination or exercise of the related Option, except that a SAR granted with
respect to less than the full number of shares covered by an Option will not be
reduced until the number of shares as to which the related Option has been
exercised or has terminated exceeds the number of shares not covered by the SAR.
(iii) The Option will terminate and no longer be exercisable upon the
exercise of the related SAR.
(iv) The SAR will be transferable only with the related Option.
(v) A SAR granted in tandem with an Incentive Stock Option may be
exercised only when the market price of the Common Stock subject to the Option
exceeds the exercise price of such Option.
(d) A SAR not granted in tandem with an Option will become exercisable at
such time or times, and on such conditions, as the Board may specify.
(e) The Board may at any time accelerate the time at which all or any part
of the SAR may be exercised.
8. Performance Shares
------------------
(a) The Board may make Performance Share Awards entitling recipients to
acquire shares of Common Stock upon the attainment of specified performance
goals. The Board may make Performance Share Awards independent of or in
connection with the granting of any other Award under the Plan. The Board in its
sole discretion shall determine the performance goals applicable under each such
Award, the periods during which performance is to be measured, and all other
limitations and conditions applicable to the awarded Performance Shares;
provided, however, that the Board may rely on the performance goals and other
standards applicable to other performance plans of the Company in setting the
standards for Performance Share Awards under the Plan.
(b) Performance Share Awards and all rights with respect to such Awards may
not be sold, assigned, transferred, pledged or otherwise encumbered.
-8-
<PAGE>
(c) A Participant receiving a Performance Share Award shall have the rights
of a stockholder only as to shares actually received by the Participant under
the Plan and not with respect to shares subject to an Award but not actually
received by the Participant. A Participant shall be entitled to receive a stock
certificate evidencing the acquisition of shares of Common Stock under a
Performance Share Award only upon satisfaction of all conditions specified in
the agreement evidencing the Performance Share Award.
(d) The Board may at any time accelerate or waive any or all of the goals,
restrictions or conditions imposed under any Performance Share Award.
9. Restricted and Unrestricted Stock
---------------------------------
(a) The Board may grant Restricted Stock Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their purchase price (or to require
forfeiture of such shares if purchased at no cost) from the recipient in the
event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable Restricted Period or Restricted
Periods established by the Board for such Award. Conditions for repurchase (or
forfeiture) may be based on continuing employment or service or achievement of
pre-established performance or other goals and objectives.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Board, during the
applicable Restricted Period. Shares of Restricted Stock shall be evidenced in
such manner as the Board may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and, unless otherwise determined by the Board, deposited by the Participant,
together with a stock power endorsed in blank, with the Company (or its
designee). At the expiration of the Restricted Period, the Company (or such
designee) shall deliver such certificates to the Participant or if the
Participant has died, to the Participant's Designated Beneficiary.
(c) The Board may, in its sole discretion, grant (or sell at a purchase
price determined by the Board, which shall not be lower than 85% of Fair Market
Value on the date of sale) to Participants shares of Common Stock free of any
restrictions under the Plan ("Unrestricted Stock").
(d) The purchase price for each share of Restricted Stock and Unrestricted
Stock shall be determined by the Board of
-9-
<PAGE>
Directors. Such purchase price may be paid in the form of past services or such
other lawful consideration as is determined by the Board.
(e) The Board may at any time accelerate the expiration of the Restricted
Period applicable to all, or any particular, outstanding shares of Restricted
Stock.
10. General Provisions Applicable to Awards
---------------------------------------
(a) Applicability of Rule 16b-3. Those provisions of the Plan which make an
---------------------------
express reference to Rule 16b-3 shall apply to the Company only at such time as
the Company's Common Stock is registered under the Exchange Act, or any
successor provision, and then only to Reporting Persons.
(b) Reporting Person Limitations. Notwithstanding any other provision of
----------------------------
the Plan, to the extent required to qualify for the exemption provided by Rule
16b-3, (i) any Option, SAR, Performance Share Award or other similar right
related to an equity security issued under the Plan to a Reporting Person shall
not be transferable other than by will or the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code or
Title I or the Employee Retirement Income Security Act ("ERISA"), or the rules
thereunder, and shall be exercisable during the Participant's lifetime only by
the Participant or the Participant's guardian or legal representative, and (ii)
the selection of a Reporting Person as a Participant and the terms of his or her
Award shall be determined only in accordance with the applicable provisions of
Rule 16b-3.
(c) Documentation. Each Award under the Plan shall be evidenced by an
-------------
instrument delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Board considers necessary or advisable. Such
instruments may be in the form of agreements to be executed by both the Company
and the Participant, or certificates, letters or similar documents, acceptance
of which will evidence agreement to the terms thereof and of this Plan.
(d) Board Discretion. Except as otherwise provided by the Plan, each type
----------------
of Award may be made alone, in addition to or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the Board need
not treat Participants uniformly. Except as otherwise provided by the Plan or a
particular Award, any determination with respect to an Award may be made by the
Board at the time of award or at any time thereafter.
-10-
<PAGE>
(e) Termination of Status. Subject to the provisions of Section 6(b)(iv),
---------------------
the Committee shall determine the effect on an Award of the disability, death,
retirement, authorized leave of absence or other termination of employment or
other status of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may exercise rights under such Award.
(f) Mergers, Etc. In the event of a consolidation, merger or other
------------
reorganization in which all of the outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity (an "Acquisition") or in the event of a liquidation of the
Company, the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions as to outstanding Awards: (i)
provide that such Awards shall be assumed, or substantially equivalent Awards
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof) on such terms as the Board determines to be appropriate, (ii)
upon written notice to Participants, provide that all unexercised Options or
SARs will become exercisable in full and will terminate immediately prior to the
consummation of such transaction except to the extent exercised by the
Participant within a specified period following the date of such notice, (iii)
in the event of an Acquisition under the terms of which holders of the Common
Stock of the Company will receive upon consummation thereof a cash payment for
each share surrendered in the Acquisition (the "Acquisition Price"), make or
provide for a cash payment to each Participant equal to the difference between
(A) the Acquisition Price times the number of shares of Common Stock subject to
outstanding Options or SARs of such Participant (to the extent such Options or
SARs have exercise prices not in excess of the Acquisition Price) and (B) the
aggregate exercise price of all such outstanding Options or SARs, in exchange
for the termination of all such Options and SARs held by such Participants, and
(iv) provide that all or any outstanding Awards shall become exercisable or
realizable in full prior to the effective date of such Acquisition.
(g) Withholding. The Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in respect of Awards under the Plan no later than the date of the
event creating the tax liability. In the Board's discretion, and subject to such
conditions as the Board may establish, such tax obligations may be paid in whole
or in part in shares of Common Stock, including shares retained from the Award
creating the tax obligation, valued at their Fair Market Value. The Company may,
to the extent
-11-
<PAGE>
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to the Participant.
(h) Foreign Nationals. Awards may be made to Participants who are foreign
-----------------
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Board considers necessary or
advisable to achieve the purposes of the Plan or comply with applicable laws.
(i) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
(j) Cancellation and New Grant of Options. The Board of Directors shall
-------------------------------------
have the authority to effect, at any time and from time to time, with the
consent of the affected optionees, (i) the cancellation of any or all
outstanding Options under the Plan and the grant in substitution therefor of new
Options under the Plan covering the same or different numbers of shares of
Common Stock and having an option exercise price per share which may be lower or
higher than the exercise price per share of the cancelled Options or (ii) the
amendment of the terms of any and all outstanding Options under the Plan to
provide an option exercise price per share which is higher or lower than the
then current exercise price per share of such outstanding Options.
(k) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan (i) until all
conditions of the Award have been satisfied or removed, (ii) until, in the
opinion of the Company's counsel, all applicable federal and state laws and
regulations have been complied with, (iii) if the outstanding Common Stock is at
the time listed on any stock exchange, until the shares to be delivered have
been listed or authorized to be listed on such exchange upon official notice of
notice of issuance, and (iv) until all other legal matters in connection with
the issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Common Stock has not been registered under the
Securities Act of 1933, as amended, the Company may require, as a condition to
exercise of the Award, such representations or agreements as the Company may
consider appropriate to avoid violation of such Act and may require that
-12-
<PAGE>
the certificates evidencing such Common Stock bear an appropriate legend
restricting transfer.
11. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim
--------------------------------------
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or service
for the Company. The Company expressly reserves the right at any time to dismiss
a Participant free from any liability or claim under the Plan, except as
expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the record holder thereof.
(c) Exclusion from Benefit Computations. No amounts payable upon exercise
-----------------------------------
of Awards granted under the Plan shall be considered salary, wages or
compensation to Participants for purposes of determining the amount or nature of
benefits that Participants are entitled to under any insurance, retirement or
other benefit plans or programs of the Company.
(d) Effective Date and Term. The Plan shall become effective upon the
-----------------------
closing of the Company's initial public offering. No Award granted under the
Plan shall become effective until the Plan shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no Options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. No Award may be made
under the Plan after May [ ], 2006, but Awards previously granted may extend
beyond that date.
(e) Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time, provided that no amendment shall be made
without stockholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement, including any requirements for
compliance with Rule 16b-3. Amendments requiring stockholder approval shall
become effective when adopted by the Board of Directors, but no Incentive Stock
Option granted after the date of such amendment shall become exercisable (to the
extent that such amendment to the Plan was required to enable the Company to
grant such Incentive Stock Option to a particular Participant) unless and until
such
-13-
<PAGE>
amendment shall have been approved by the Company's stockholders. If such
stockholder approval is not obtained within twelve months of the Board's
adoption of such amendment, any Incentive Stock Options granted on or after the
date of such amendment shall terminate to the extent that such amendment to the
Plan was required to enable the Company to grant such option to a particular
Participant.
(f) Governing Law. The provisions of the Plan shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware.
Adopted by the Board of Directors
on May 29, 1996
-14-
<PAGE>
EXHIBIT 10.3
CAMBRIDGE HEART, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Cambridge
Heart, Inc. (the "Company") and certain of its subsidiaries with opportunities
to purchase shares of the Company's Common Stock (the "Common Stock"). One
Hundred Thousand (100,000) shares of Common Stock in the aggregate have been
approved for this purpose.
1. Administration. The Plan will be administered by the Company's Board
--------------
of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
-----------
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined below) to purchase Common Stock under the Plan, provided
that:
(a) they are regularly employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five months in a
calendar year; and
(b) they have been employed by the Company or a Designated Subsidiary
for at least three months prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and
<PAGE>
all stock which the employee has a contractual right to purchase shall be
treated as stock owned by the employee.
3. Offerings. The Company will make one or more offerings ("Offerings")
---------
to employees to purchase Common Stock under this Plan. The Board or the
Committee shall determine the commencement dates of each of the Offerings (the
"Offering Commencement Dates"). Each Offering Commencement Date will begin a
period (a "Plan Period") during which payroll deductions will be made and held
for the purchase of Common Stock at the end of the Plan Period. The Board or the
Committee shall choose a Plan Period of twelve (12) months or less for each of
the Offerings and may, at its discretion, choose a different Plan Period for
each Offering.
4. Participation. An employee eligible on the Offering Commencement Date
-------------
of any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the Controller of the Company at least
14 days prior to the applicable Offering Commencement Date. The form will
authorize a regular payroll deduction from the Compensation received by the
employee during the Plan Period. Unless an employee files a new form or
withdraws from the Plan, his deductions and purchases will continue at the same
rate for future Offerings under the Plan as long as the Plan remains in effect.
The term "Compensation" means the amount of money reportable on the employee's
Federal Income Tax Withholding Statement, excluding overtime, shift premium,
incentive or bonus awards, allowances and reimbursements for expenses such as
relocation allowances for travel expenses, income or gains on the exercise of
Company stock options or stock appreciation rights, and similar items, whether
or not shown on the employee's Federal Income Tax Withholding Statement, but
including, in the case of salespersons, sales commissions to the extent
determined by the Board or the Committee.
5. Deductions.
----------
(a) The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Offering made under this Plan, an
employee may authorize a payroll deduction in any dollar amount up to a maximum
of 10% of the Compensation he or she receives during the Plan Period or such
shorter period during which deductions from payroll are made. Payroll deductions
may be at the rate of 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9% or 10% of Compensation.
(b) No employee may be granted an Option which permits his rights to
purchase Common Stock under this Plan and any other stock purchase plan of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such
-2-
<PAGE>
Common Stock (determined at the Offering Commencement Date of the Plan Period)
for each calendar year in which the Option is outstanding at any time.
6. Deduction Changes. An employee may decrease or discontinue his payroll
-----------------
deduction once during any Plan Period by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. Interest. Interest will not be paid on any employee payroll deduction
--------
accounts, except to the extent that the Board or its Committee, in its
sole discretion, elects to credit such accounts with interest at such
per annum rate as it may from time to time determine.
8. Withdrawal of Funds. An employee may on any one occasion during a Plan
-------------------
Period and for any reason withdraw all or part of the balance accumulated in the
employee's payroll deduction account. Any such withdrawal must be effected prior
to the close of business on the last day of the Plan Period. If the employee
withdraws all of such balance, the employee shall thereby withdraw from
participation in the Offering and may not begin participation again during the
remainder of the Plan Period. Any employee withdrawing all or part of such
balance may participate in any subsequent Offering in accordance with terms and
conditions established by the Board or the Committee, except that, unless
otherwise permitted under Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules promulgated thereunder, any employee
who is also a director and/or officer of the Company within the meaning of
Section 16 of the Exchange Act may not (a) withdraw less than all of the balance
accumulated in such employee's payroll deduction account or (b) participate
again for a period of at least six months as provided in Rule 16b-3(d)(2)(i) or
any successor provision under the Exchange Act.
9. Purchase of Shares.
------------------
(a) On the Offering Commencement Date of each Plan Period, the
Company will grant to each eligible employee who is then a participant in the
Plan an option (an "Option") to purchase on the last business day of such Plan
Period (the "Exercise Date"), at the Option Price hereinafter provided for, such
number of whole shares of Common Stock of the Company reserved for the purposes
of the Plan as does not exceed the number of shares
-3-
<PAGE>
determined by dividing 15% of such employee's annualized Compensation for the
immediately prior six-month period by the price determined in accordance with
the formula set forth in the following paragraph but using the closing price on
the Offering Commencement Date of such Plan Period.
(b) The Option Price for each share purchased will be 85% of the
closing price of the Common Stock on (i) the first business day of such Plan
Period or (ii) the Exercise Date, whichever closing price shall be less. Such
closing price shall be (A) the closing price of the Common Stock on any national
securities exchange on which the Common Stock is listed, or (B) the closing
price of the Common Stock on the Nasdaq National Market ("Nasdaq") or (C) the
average of the closing bid and asked prices in the over-the-counter market,
whichever is applicable, as published in The Wall Street Journal. If no sales of
-----------------------
Common Stock were made on such a day, the price of the Common Stock for purposes
of clauses (A) and (B) above shall be the reported price for the next preceding
day on which sales were made.
(c) Each employee who continues to be a participant in the Plan on
the Exercise Date shall be deemed to have exercised his Option at the Option
Price on such date and shall be deemed to have purchased from the Company the
number of full shares of Common Stock reserved for the purpose of the Plan that
his accumulated payroll deductions on such date will pay for pursuant to the
formula set forth above (but not in excess of the maximum number determined in
the manner set forth above).
(d) Any balance remaining in an employee's payroll deduction account
at the end of a Plan Period will be automatically refunded to the employee,
except that any balance which is less than the purchase price of one share of
Common Stock will be carried forward into the employee's payroll deduction
account for the following Offering, unless the employee elects not to
participate in the following Offering under the Plan, in which case the balance
in the employee's account shall be refunded.
10. Issuance of Certificates. Certificates representing shares of Common
------------------------
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the street
name of a brokerage firm, bank or other nominee holder designated by the
employee.
11. Rights on Retirement, Death or Termination of Employment. In the event
--------------------------------------------------------
of a participating employee's termination of employment prior to the last
business day of a Plan Period (whether as a result of the employee's voluntary
or
-4-
<PAGE>
involuntary termination, retirement, death or otherwise), no payroll deduction
shall be taken from any pay due and owing to the employee and the balance in the
employee's payroll deduction account shall be paid to the employee or, in the
event of the employee's death, (a) to a beneficiary previously designated in a
revocable notice signed by the employee (with any spousal consent required under
state law) or (b) in the absence of such a designated beneficiary, to the
executor or administrator of the employee's estate or (c) if no such executor or
administrator has been appointed to the knowledge of the Company, to such other
person(s) as the Company may, in its discretion, designate. If, prior to the
last business day of the Plan Period, the Designated Subsidiary by which an
employee is employed shall cease to be a subsidiary of the Company, or if the
employee is transferred to a subsidiary of the Company that is not a Designated
Subsidiary, the employee shall be deemed to have terminated employment for the
purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
--------------------------
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. Rights Not Transferable. Rights under this Plan are not transferable
-----------------------
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Application of Funds. All funds received or held by the Company under
--------------------
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. Adjustment in Case of Changes Affecting Common Stock. In the event of
----------------------------------------------------
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. Merger.
------
(a) If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the
-5-
<PAGE>
capital stock of the surviving corporation ("Continuity of Control"), the holder
of each Option then outstanding will thereafter be entitled to receive at the
next Exercise Date upon the exercise of such Option for each share as to which
such Option shall be exercised the securities or property which a holder of one
share of the Common Stock was entitled to upon and at the time of such merger,
and the Board or the Committee shall take such steps in connection with such
merger as the Board or the Committee shall deem necessary to assure that the
provisions of Section 15 shall thereafter be applicable, as nearly as reasonably
may be, in relation to the said securities or property as to which such holder
of such Option might thereafter be entitled to receive thereunder.
(b) In the event of a merger or consolidation of the Company with or
into another corporation which does not involve Continuity of Control, or of a
sale of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (i) subject to the provisions of
clauses (ii) and (iii), after the effective date of such transaction, each
holder of an outstanding Option shall be entitled, upon exercise of such Option,
to receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (ii) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of any such
transaction and all payroll deductions shall be paid out to the participating
employees; or (iii) all outstanding Options may be cancelled by the Board or the
Committee as of the effective date of any such transaction, provided that notice
of such cancellation shall be given to each holder of an Option, and each holder
of an Option shall have the right to exercise such Option in full based on
payroll deductions then credited to his account as of a date determined by the
Board or the Committee, which date shall not be less than ten (10) days
preceding the effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time
---------------------
to time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the stockholders of the Company is required by Section 423 of
the Code or by Rule 16b-3 under the Exchange Act, such amendment shall not be
effected without such approval, and (b) in no event may any amendment be made
which would cause the Plan to fail to comply with Section 16 of the Exchange Act
and the rules promulgated thereunder, as in effect from time to time, or Section
423 of the Code.
18. Insufficient Shares. In the event that the total number of shares
-------------------
of Common Stock specified in elections to be purchased
-6-
<PAGE>
under any Offering plus the number of shares purchased under previous Offerings
under this Plan exceeds the maximum number of shares issuable under this Plan,
the Board or the Committee will allot the shares then available on a pro rata
basis.
19. Termination of the Plan. This Plan may be terminated at any time by
-----------------------
the Board. Upon termination of this Plan all amounts in the payroll deduction
accounts of participating employees shall be promptly refunded.
20. Governmental Regulations.
------------------------
(a) The Company's obligation to sell and deliver Common Stock under
this Plan is subject to listing on a national stock exchange or quotation on
Nasdaq and the approval of all governmental authorities required in connection
with the authorization, issuance or sale of such stock.
(b) The Plan shall be governed by the laws of the State of Delaware
except to the extent that such law is preempted by federal law.
(c) The Plan is intended to comply with the provisions of Rule 16b-3
promulgated under the Exchange Act. Any provision inconsistent with such Rule
shall to that extent be inoperative and shall not affect the validity of the
Plan.
21. Issuance of Shares. Shares may be issued upon exercise of an Option
------------------
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. Notification upon Sale of Shares. Each employee agrees, by entering
--------------------------------
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
23. Effective Date and Approval of Stockholders. The Plan shall take
-------------------------------------------
effect upon the closing of the Company's initial public offering of Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended, subject to approval by the stockholders of the Company as
required by Rule 16b-3 under the Exchange Act and by Section 423 of the Code,
which approval must occur within twelve months of the adoption of the Plan by
the Board.
Adopted by the Board of Directors on
29, 1996
-7-
<PAGE>
EXHIBIT G Exhibit 10.4
CAMBRIDGE HEART, INC.
1996 DIRECTOR OPTION PLAN
1. Purpose.
-------
The purpose of this 1996 Director Stock Option Plan
(the "Plan") of Cambridge Heart, Inc. (the "Company") is to
encourage ownership in the Company by outside directors of the
Company whose continued services are considered essential to the
Company's future progress and to provide them with a further
incentive to remain as directors of the Company.
2. Administration.
--------------
The Board of Directors shall supervise and administer the
Plan. Grants of stock options under the Plan and the amount and
nature of the awards to be granted shall be automatic in
accordance with Section 5. However, all questions concerning
interpretation of the Plan or any options granted under it shall
be resolved by the Board of Directors and such resolution shall be
final and binding upon all persons having an interest in the Plan.
3. Participation in the Plan.
-------------------------
Directors of the Company who are not full-time employees of
the Company or any subsidiary of the Company and are not, as
determined by the Board of Directors in its reasonable judgment,
otherwise affiliated with the Company ("outside directors") shall
be eligible to receive options under the Plan.
4. Stock Subject to the Plan.
-------------------------
(a) The maximum number of shares of the Company's Common
Stock ("Common Stock"), which may be issued under the Plan shall
be 100,000 shares, subject to adjustment as provided in Section 7.
(b) If any outstanding option under the Plan for any reason
expires or is terminated without having been exercised in full,
the shares covered by the unexercised portion of such option shall
again become available for issuance pursuant to the Plan.
(c) All options granted under the Plan shall be non-
statutory options not entitled to special tax treatment under
Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
<PAGE>
5. Terms, Conditions and Form of Options.
-------------------------------------
Each option granted under the Plan shall be evidenced by a
written agreement in such form as the Board of Directors shall
from time to time approve, which agreements shall comply with and
be subject to the following terms and conditions:
(a) Option Grant Dates. Options shall automatically be
------------------
granted to all eligible outside directors as follows:
(1) each person who is an eligible outside director on
the closing date (the "Closing Date") of the Company's initial
public offering of Common Stock pursuant to an effective
registration statement under the Securities Act of 1993, as
amended, shall be granted an option to purchase 10,000 shares of
Common Stock on the Closing Date; and
(ii) each person who first becomes an eligible outside
director after the Closing Date shall be granted an option to
purchase 10,000 shares of Common Stock on the date of his or her
initial election to the Board of Directors.
(b) Option Exercise Price. The option exercise price per
---------------------
share for each option described in clause (i) of Section 5(a)
shall be equal to the last reported sale price of the Common Stock
on the Nasdaq National Market on the Closing Date. The option
exercise price per share for each option described in clauses (ii)
and (iii) of Section 5(a) shall be determined as follows: (i) if
the Common Stock is listed on the Nasdaq National Market or
another nationally recognized exchange or trading system as of the
Option Grant Date, the option exercise price shall be deemed to be
the last reported sale price per share of Common Stock thereon on
such date (or if no such price is reported on such date, such
price on the nearest preceding date on which such a price is
reported); and (ii) if the Common Stock is not listed on the
Nasdaq National Market or another nationally recognized exchange
or trading system as of the Option Grant Date, the exercise price
per share shall be deemed to be the fair market value of the
Common Stock as of the Option Grant Date as determined in good
faith by the Board of Directors.
(c) Options Non-Transferable. To the extent required to
------------------------
qualify for the exemption provided by Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), any option granted under the Plan to an optionee shall not
be transferable by the optionee other than by will or the laws of
descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee
-2-
<PAGE>
Retirement Income Security Act, or the rules thereunder, and shall
be exercisable during the optionee's lifetime only by the optionee
or the optionee's guardian or legal representative.
(d) Vesting Period.
--------------
(i) General. Each option described in clauses (i) and
-------
(ii) of Section 5(a) shall vest in three equal, annual
installments on the anniversary of the Option Grant Date.
(ii) Acceleration Upon Change in Control.
-----------------------------------
Notwithstanding the foregoing, each outstanding option granted
under the Plan shall immediately become exercisable in full in the
event a Change in Control (as defined in Section 8) of the Company
occurs.
(e) Termination. Each option shall terminate, and may no
-----------
longer be exercised, on the earlier of the (i) the date 10 years
after the Option Grant Date or (ii) the date 60 days after the
optionee ceases to serve as a director of the Company; provided
that, in the event an optionee ceases to serve as a director due
to his or her death or disability (within the meaning of
Section 22(e)(3) of the Code or any successor provision), then the
exercisable portion of the option may be exercised, within the
period of 180 days following the date the optionee ceases to serve
as a director (but in no event later than 10 years after the
Option Grant Date), by the optionee or by the person to whom the
option is transferred by will, by the laws of descent and
distribution, or by written notice pursuant to Section 5(g).
(f) Exercise Procedure. An option may be exercised only by
------------------
written notice to the Company at its principal office accompanied
by payment in cash of the full consideration for the shares as to
which the option is exercised.
(g) Exercise by Representative Following Death of Director.
------------------------------------------------------
An optionee, by written notice to the Company, may designate one
or more persons (and from time to time change such designation),
including his or her legal representative, who, by reason of the
optionee's death, shall acquire the right to exercise all or a
portion of the option. If the person or persons so designated
wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a
representative shall be subject to the provisions of the Plan.
6. Limitation of Rights.
--------------------
(a) No Right to Continue as a Director. Neither the Plan,
----------------------------------
nor the granting of an option nor any other action taken pursuant
to the Plan, shall constitute or be evidence of any agreement or
-3-
<PAGE>
understanding, express or implied, that the Company will retain
the optionee as a director for any period of time.
(b) No Stockholders' Rights for Options. An optionee shall
-----------------------------------
have no rights as a stockholder with respect to the shares covered
by his or her option until the date of the issuance to him or her
of a stock certificate therefor, and no adjustment will be made
for dividends or other rights (except as provided in Section 7)
for which the record date is prior to the date such certificate is
issued.
7. Adjustment Provisions for Mergers, Recapitalizations and
--------------------------------------------------------
Related Transactions.
--------------------
If, through or as a result of any merger, consolidation,
reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, or other similar
transaction, (i) the outstanding shares of Common Stock are
exchanged for a different number or kind of securities of the
Company or of another entity, or (ii) additional shares or new or
different shares or other securities of the Company or of another
entity are distributed with respect to such shares of Common
Stock, the Board of Directors shall make an appropriate and
proportionate adjustment in (x) the maximum number and kind of
shares reserved for issuance under the Plan, (y) the number and
kind of shares or other securities subject to then outstanding
options under the Plan, and/or (z) the price for each share
subject to any then outstanding options under the Plan (without
changing the aggregate purchase price for such options), to the
end that each option shall be exercisable, for the same aggregate
exercise price, for such securities as such optionholder would
have held immediately following such event if he had exercised
such option immediately prior to such event. No fractional shares
will be issued under the Plan on account of any such adjustments.
8. Change in Control. For purposes of the Plan, a "Change in
-----------------
Control" shall be deemed to have occurred only if any of the
following events occurs: (i) any "person", as such term is used
in Sections 13(d) and 14(d) of the Exchange Act (other than the
Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or any corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of stock of
the Company), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined
voting power of the Company's then outstanding securities;
(ii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
-4-
<PAGE>
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; (iii) the
stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets; or
(iv) individuals who, on the date on which the Plan was adopted by
the Board of Directors, constituted the Board of Directors of the
Company, together with any new director whose election by the
Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the
directors then still in office who were directors on the date on
which the Plan was adopted by the Board of Directors or whose
election or nomination was previously so approved, cease for any
reason to constitute at least a majority of the Board of
Directors.
9. Modification, Extension and Renewal of Options.
----------------------------------------------
The Board of Directors shall have the power to modify or
amend outstanding options; provided, however, that no modification
or amendment may (i) have the effect of altering or impairing any
rights or obligations of any option previously granted without the
consent of the optionee, or (ii) modify the number of shares of
Common Stock subject to the option (except as provided in
Section 7).
10. Termination and Amendment of the Plan.
-------------------------------------
The Board of Directors may suspend, terminate or discontinue
the Plan or amend it in any respect whatsoever; provided, however,
that without approval of the stockholders of the Company, no
amendment may (i) increase the number of shares subject to the
Plan (except as provided in Section 7), (ii) materially modify the
requirements as to eligibility to receive options under the Plan,
or (iii) materially increase the benefits accruing to participants
in the Plan; and provided further that the Board of Directors may
not amend the provisions of Sections 3, 5(a) or 5(b) more
frequently than once every six months, other than to comply with
changes in the Code or the rules thereunder.
11. Notice.
------
Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Controller of the
Company and shall become effective when it is received.
-5-
<PAGE>
12. Governing Law.
-------------
The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of
Delaware.
13. Stockholder Approval.
--------------------
The Plan is conditional upon stockholder approval of the Plan
within one year from its date of adoption by the Board of
Directors. No option under the Plan may be exercised until such
stockholder approval is obtained, and the Plan and all options
granted under the Plan shall be null and void if the Plan is not
so approved by the Company's stockholders.
Adopted by the Board of Directors on
May 29, 1996
-6-
<PAGE>
EXHIBIT 10.5
CONSULTING AND TECHNOLOGY AGREEMENT
RICHARD JONATHAN COHEN
and
CAMBRIDGE HEART, INC.
<PAGE>
TABLE OF CONTENTS
PAGE
PREAMBLE
ARTICLES
1 DEFINITIONS
2 CONSULTING DUTIES
3 INTELLECTUAL PROPERTY
4 CASH COMPENSATION, REIMBURSEMENT AND GRANT OF WARRANTS
5 DUE DILIGENCE
6 ROYALTIES
7 REPORTS AND RECORDS
8 PRODUCT LIABILITY
9 NON-USE OF NAMES
10 SUBLICENSES
11 ASSIGNMENT
12 DISPUTE RESOLUTION
13 TERMINATION
14 PAYMENTS, NOTICES AND OTHER
COMMUNICATIONS
15 MISCELLANEOUS PROVISIONS
-2-
<PAGE>
This Consulting and Technology Agreement ("Agreement") is made and entered
into this day of February, 1993 (the "Effective Date"), by and
between RICHARD JONATHAN COHEN, a natural person residing at 133 Collins Road,
Waban, Massachusetts 02168 (hereinafter referred to as "COHEN"), and CAMBRIDGE
HEART, INC., a corporation duly organized under the laws of Delaware and having
its principal office at 645 Madison Avenue, 14th Floor, New York, NY 10022
(hereinafter referred to as the "Company").
WITNESSETH
WHEREAS, COHEN has expertise in each of the TECHNOLOGIES (as defined below)
and desires to have the TECHNOLOGIES commercialized and is willing to provide
consultation services for this purpose,
WHEREAS, the Company desires to obtain COHEN's consulting services upon the
terms and conditions hereinafter set forth,
WHEREAS, the Company desires to obtain COHEN's assistance in transferring
the TECHNOLOGIES to the Company,
WHEREAS, the Company and COHEN wish to develop IMPROVEMENTS (as defined
below) to the TECHNOLOGIES,
WHEREAS, the Company has represented to COHEN, to induce COHEN to enter
into this Agreement, that the Company shall commit itself to a thorough,
vigorous and diligent program of exploiting the TECHNOLOGIES and IMPROVEMENTS so
that commercialization shall result therefrom.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
For the purposes of this Agreement, the following words and phrases shall
have the following meanings:
-3-
<PAGE>
1.1 "the Company" shall include any related company of CAMBRIDGE HEART,
INC. the voting stock of which is directly or indirectly at least fifty percent
(50%) owned or controlled by CAMBRIDGE HEART, INC.
1.2 "TECHNOLOGIES" shall mean TECHNOLOGIES PRIMARILY
LICENSED FROM THIRD PARTIES and OTHER TECHNOLOGIES:
(a) "TECHNOLOGIES PRIMARILY LICENSED FROM THIRD PARTIES"
shall mean:
(i) CARDIAC ELECTRICAL IMAGING,
(ii) ASSESSMENT OF MYOCARDIAL ELECTRICAL STABILITY,
(iii) CARDIOVASCULAR SYSTEM IDENTIFICATION,
(iv) PACING TECHNOLOGY FOR PREVENTION OF CARDIAC DYSRHYTHMIAS,
and
(v) Other technologies which shall by the mutual written consent of
the Company and COHEN be added to this category.
Technologies (i), (ii), (iii) and (iv) shall fall within the
definition to the extent that they fall within (x) the claims of patents or
pending applications (whether or not such patents have expired and whether or
not any patents issue as the result of such applications), (y) the copyrights
(whether or not registered) and copyrightable material or the (z) tangible
property licensed to the Company by the Massachusetts Institute of Technology
("MIT") for the development of these technologies.
(b) "OTHER TECHNOLOGIES" shall mean:
(i) the technologies associated with CONTINUOUS CARDIAC OUTPUT
MONITORING which are the subject of a license agreement dated the
date hereof between COHEN and the Company, and
(ii) other technologies which shall by the mutual written consent of
the Company and COHEN be added to this category.
1.3 A "PRODUCT" shall mean any product including, but not limited to,
instrumentation, devices, software, reagents, and supplies:
(a) covered in whole or in part by an issued, unexpired patent claim or a
pending patent claim, or a copyright (whether or not registered),
-4-
<PAGE>
contained in the TECHNOLOGIES or IMPROVEMENTS in the country in which
any PRODUCT is made, used or sold; and/or
(b) manufactured by using a process which is covered in whole or in part
by an issued, unexpired patent claim or pending patent claim, or a
copyright (whether or not registered), contained in the TECHNOLOGIES
or IMPROVEMENTS in the country in which any PROCESS is used or in
which such product or part thereof is used or sold.
1.4 A "PROCESS" shall mean any process which is covered in whole or in
part by an issued, unexpired patent claim or a pending patent claim or
a copyright (whether or not registered), contained in the TECHNOLOGIES
or IMPROVEMENTS in the country in which such process is used.
1.5 "NET SALES" shall mean collected billings for PRODUCTS and PROCESSES
produced hereunder less the sum of the following:
(a) discounts allowed in amounts customary in the trade;
(b) sales, tariffs, duties and/or use taxes directly imposed and with
reference to particular sales;
(c) outbound transportation prepaid or allowed; and
(d) amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals
whether they be with independent sales agencies or regularly employed by the
Company and on its payroll, or for cost of collections. PRODUCTS and PROCESSES
shall be considered "Sold" when paid for.
1.6 "TERRITORY" shall mean worldwide.
1.7 "FIELD OF USE" shall mean all.
1.8 "SUBLICENSEE" shall mean a third party sublicensed by the Company to
make, have made, use, lease and/or sell the PRODUCT(S) and
PROCESS(ES).
1.9 "IMPROVEMENTS" shall mean (i) any and all modifications, refinements,
and enhancements to the TECHNOLOGIES conceived of or reduced to
practice by COHEN under the terms of a consulting or employment
contract with the Company and/or (ii) any and all modifications,
refinements and enhancements to the TECHNOLOGIES conceived or reduced
to practice by the Company during any period which COHEN is a
consultant to or employee of the Company. Such IMPROVEMENTS include,
but are not limited to,
-5-
<PAGE>
(a) United States and foreign patent applications,
(b) United States and foreign patents issued from the applications of (a)
above and from divisionals and continuations of these applications,
(c) COPYRIGHTABLE and TANGIBLE property including computer code, circuit
diagrams, etc.,
(d) Copyrights resulting from material in (c) above, and
(e) Other materials including unissued sections of (a), mathematical
formulae, drawings, trade secrets, know-how and show-how, etc.
ARTICLE 2 - CONSULTING DUTIES
2.1 For a five-year period (the "Consulting Period") starting on the
Effective Date of this Agreement, COHEN will be available to the Company for
consultation for a minimum of 36 days per year, but no more than 42 days per
year, including travel time; provided, that in the event that COHEN is granted a
sabbatical (the "Sabbatical") by his current employer commencing at any time
during the first year of the Consulting Period, the minimum and maximum number
of days which COHEN shall be available to the Company during the Sabbatical
shall be increased by 50 days per year (or a prorated portion thereof if the
Sabbatical is for less than one year) to 86 days and 92 days, respectively.
Consultation will occur at mutually agreeable times and places. COHEN shall
coordinate his consulting activity with the Chief Executive Officer of the
Company.
2.2 During the Consulting Period, COHEN shall consult for the Company in
regard to the development and commercialization of the TECHNOLOGIES and
IMPROVEMENTS. During the Consulting Period, COHEN agrees not to be employed by
or consult for any other commercial organization (a "commercial organization"
shall not be construed to include a university, hospital or other non-profit
organization (a "Not-For-Profit")) with regard to the development and
commercialization of (i) the TECHNOLOGIES or the IMPROVEMENTS or (ii) any
-6-
<PAGE>
products or processes which the Company reasonably deems to be competitive with
any products or processes which, during the Consulting Period, the Company has
commercialized, or planned or sought to commercialize, through the development
or exploitation of the TECHNOLOGIES or the IMPROVEMENTS. If the Company shall
lose its license needed to develop and commercialize one or more of the
TECHNOLOGIES, then, subject to clause (ii) of the preceding sentence, COHEN may
be employed by or consult for other commercial organizations regarding the
commercialization and development of such TECHNOLOGIES notwithstanding clause
(i) of the preceding sentence.
2.3 The Company shall have the right, exercisable upon written notice to
COHEN no less than sixty (60) days prior to the expiration of the Consulting
Period, or within thirty (30) days of the termination of the Consulting Period
if the Consulting Period terminates prior to the fifth anniversary of this
Agreement, to extend for up to two additional years the period (the "Noncompete
Period") during which COHEN is prohibited from competing with Company as
specified in Section 2.2 hereof; provided, that the Company makes payments to
COHEN monthly, in advance, throughout such Noncompete Period at a rate equal to
the monthly retainer which COHEN would have been entitled to receive pursuant to
Section 4.1 hereof (giving effect to the mandatory increases required therein)
if the Consulting Period had continued throughout such Noncompete Period.
2.4 (a) In the event that during the Consulting Period, Cohen desires to
seek primary employment with any organization other than a Not-for-Profit, Cohen
shall notify the Company in writing and the Company shall have the right (the
"Employment Option"), exercisable by written notice to COHEN no later than
thirty (30) days from receipt of the aforementioned notice from COHEN, to employ
COHEN as a full-time employee of the Company for the unexpired portion of the
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<PAGE>
Consulting Period, at a salary determined as set forth below and on other terms
and conditions comparable to those generally prevailing between the Company and
its senior executive employees; provided, that any employment agreement between
the Company and COHEN shall include, without limitation, the following terms:
(i) COHEN's employment duties shall be determined by the Board of Directors of
the Company; (ii) during the term of COHEN's employment, the Company and COHEN
shall have rights and obligations which are comparable to those set forth in the
second sentence of Section 2.2 hereof, and such rights and obligations shall be
subject to a two-year extension option on terms comparable to those set forth in
Section 2.3 hereof; provided, that the Company makes payments to COHEN monthly,
in advance, throughout such Noncompete Period at a rate equal to the monthly
salary which Cohen would have been entitled to receive pursuant to this Section
2.4(a) if the employment term had continued throughout such Noncompete Period;
and (iii) COHEN shall be entitled to paid days off to observe all holidays which
are required to be observed in accordance with the laws of Orthodox Judaism.
COHEN's salary during the term of his employment shall be as follows:
(x) In the event COHEN delivers a notice to the Company pursuant
to this Section 2.4 at anytime during the first twenty-four (24)
months of the Consulting Period, COHEN's annual salary shall be 2.25
times the annual consulting fee then being paid to COHEN pursuant to
Section 4.1 hereof (subject to annual increases as provided in such
Section 4.1); and
(y) In the event COHEN delivers a notice to the Company pursuant
to this Section 2.4 at anytime after the expiration of the first
twenty-four (24) months of
-8-
<PAGE>
the Consulting Period, COHEN's annual salary shall be 2.5 times the
annual consulting fee then being paid to COHEN pursuant to Section 4.1
hereof (subject to annual increases as provided in such Section 4.1).
(b) Notwithstanding the Company's exercise of the Employment Option
pursuant to this Section 2.4, the Company may, at its sole option and
discretion, deliver a written notice of termination to COHEN at anytime within
sixty (60) days following the commencement date of COHEN's full-time employment,
and in such case COHEN's employment shall terminate ninety (90) days following
the commencement date of COHEN's full-time employment.
(c) In the event that the Company does not exercise the Employment Option
pursuant to this Paragraph 2.4, COHEN shall have the right to enter into a bona
fide full-time employment arrangement with a third party and to terminate this
Agreement effective upon the commencement date of his employment by such third
party upon not less than thirty (30) day's written notice to the Company. In
the event that COHEN does not enter into a bona fide full-time employment
agreement with a third party pursuant to which COHEN's employment commences
within four (4) months of the date of COHEN's notice to the Company pursuant to
this Paragraph 2.4, COHEN's obligations to the Company under this Agreement
shall continue in full force and effect, and COHEN shall be required to deliver
a new notice to the Company pursuant to this Paragraph 2.4 prior to entering
into any employment agreement with any organization other than a Not-for-Profit.
2.5 During the Consulting Period, COHEN shall be the Chairman of the
Company's Scientific Advisory Board.
2.6 COHEN hereby represents and warrants to the Company that the
performance by him of his obligations to the Company hereunder will not violate
any commitments or undertakings to which COHEN may be bound.
-9-
<PAGE>
2.7 The Consulting Period shall terminate upon COHEN's death or in the
event that, due to physical or mental disability, COHEN is unable to perform
consulting services hereunder for a period of 180 consecutive days.
ARTICLE 3 - INTELLECTUAL PROPERTY
3.1 Any enhancements, improvements, refinements or modifications to the
TECHNOLOGIES or IMPROVEMENTS, and any other inventions, conceived, or reduced to
practice, in whole or in part by COHEN in the context of his consulting activity
under this Agreement, shall be assigned to the Company.
3.2 To the extent permissible under the terms of the Company's license
agreements with third parties or with COHEN, as the case may be, the Company
shall apply for, seek prompt issuance of, and maintain appropriate IMPROVEMENTS
patents and copyrights in the United States and appropriate foreign countries.
All such patents and copyrights shall be applied for in the name of the Company,
except as required by the terms of the Company's license agreements with third
parties or with COHEN, as the case may be. The prosecution, filing and
maintenance of all IMPROVEMENTS copyrights, patents and applications therefor
shall be the responsibility of the Company; provided COHEN shall have reasonable
opportunities to advise the Company. The Company may request COHEN to assist
the Company in preparing and prosecuting patent and copyright applications in
this regard, and COHEN agrees to do so. To the extent that COHEN is requested
to assist the Company in preparing and prosecuting patent and copyright
applications during the Consulting Period, such assistance shall be part of
COHEN's consulting duties, and COHEN shall not be separately compensated
therefor. In addition, in the event that the Company exercises its option
pursuant to Paragraph 2.2 hereof to extend the Noncompete Period beyond the
expiration or termination of the Consulting Period, the Company shall be
entitled to COHEN's assistance, without charge, in the preparation and
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<PAGE>
prosecution of IMPROVEMENTS patent and copyright applications up to an average
of not more than two days per month during such extended Noncompete Period.
Except as set forth herein, or in any employment agreement which may hereafter
be entered into between COHEN and the Company, COHEN shall be entitled to
receive reasonable consulting fees for his time spent assisting the Company in
preparing and prosecuting IMPROVEMENTS patent and copyright applications
hereunder.
3.3 Payment of all fees and costs relating to the filing, prosecution, and
maintenance of IMPROVEMENTS patents and copyrights shall be the responsibility
of the Company.
3.4 The Company is aware that COHEN is a university professor currently
employed by the Massachusetts Institute of Technology ("MIT") conducting
research in the fields of the TECHNOLOGIES, and that COHEN is obligated to
assist MIT in protecting inventions and copyrightable material developed by him
or in his laboratory at MIT, and to assist MIT in transferring such inventions
and copyrightable materials to third parties. In the event that it is unclear
whether a particular invention or copyrightable material in the nature of an
improvement to the TECHNOLOGIES is developed by COHEN in the context of his
consulting activity at the Company or in the context of his activities as an
employee of MIT or any other Not-for-Profit at which COHEN may be employed
during the Consulting Period, the Company will approach the Not-for-Profit in
good faith to negotiate a reasonable resolution.
3.5 COHEN agrees not to reveal (except in discharge of a legal duty to do
so) confidential information and trade secrets of the Company relating to the
TECHNOLOGIES or any confidential information relating to the business of the
Company which is disclosed to him in the context of his consultancy or in
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connection with his rights to receive royalties hereunder. Such confidential
information and trade secrets shall not be construed to include information:
(a) which is generally available to the public; and/or
(b) which through no act of COHEN becomes information generally
available to the public; and/or
(c) which corresponds in substance to information furnished to COHEN
by any third party having a lawful and unrestricted right to do
so; and/or
(d) which corresponds to information forwarded by the Company to any
third party on a non-confidential basis.
ARTICLE 4 - CASH COMPENSATION; REIMBURSEMENT AND GRANT OF WARRANTS
4.1 In consideration for his consulting services, the Company shall pay
COHEN a retainer of Seven-thousand-five-hundred dollars ($7,500) per month
during the Consulting Period. The monthly retainer paid to COHEN may be
increased from time to time at the discretion of the Board of Directors of the
Company based upon corporate performance and COHEN's performance; provided,
however, that in no case in any given year shall the annual percentage increase
above the previous year's level be less than the sum of three percent (3%) plus
the annual percentage increase in the National Consumer Price Index. In the
event that COHEN is granted the Sabbatical during the Consulting Period and the
number of days which COHEN is available to the Company is increased in
accordance with Pagraph 2.1 hereof, the amount of the monthly retainer fee paid
to COHEN shall be increased by five thousand ($5,000) per month during the
Sabbatical. The Company shall be obligated to pay COHEN the monthly retainer
fee whether or not the Company utilizes COHEN's consulting services. During the
Consulting Period, the retainer due to COHEN hereunder shall be paid monthly in
advance.
4.2 The Company will pay for all of COHEN's travel and other out-of-pocket
expenses incurred in connection with his consulting activity, as well as
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any expenses of a similar nature incurred by Cohen prior to the Effective Date
of this Agreement. Upon request the Company will advance COHEN funds to cover
anticipated out-of-pocket expenses, and reimburse COHEN within five business
days of receipt of COHEN's invoices for his uncovered out-of-pocket expenses.
4.3 As an inducement to COHEN to enter into this Agreement, the Company
hereby agrees that upon the execution and delivery of this Agreement by COHEN,
the Company shall issue to COHEN a common stock purchase warrant in the form of
Exhibit I hereto (the "Warrant") entitling COHEN to purchase a number of shares
of Common Stock, $.01 par value per share ("Common Stock"), of the Company, to
be determined as set forth in the Warrant (not to exceed 133,000 shares) at an
initial exercise price per share to be determined as set forth in the Warrant.
ARTICLE 5 - DUE DILIGENCE
5.1 The Company either directly or through its SUBLICENSEEs shall use its
reasonable best efforts to bring PRODUCTS or PROCESSES for each of the
TECHNOLOGIES to market through an ongoing, thorough, vigorous and diligent
program for exploitation of the TECHNOLOGIES and IMPROVEMENTS and to continue
vigorous, ongoing, active, diligent marketing of the PRODUCTS or PROCESSES. Such
efforts shall include, but shall not be limited to, conducting clinical trials
and evaluations necessary to obtain pre-market FDA approval.
5.2 In addition to the obligations set forth in Paragraph 5.1 hereof, the
Company shall adhere to the following milestones:
(a) The Company shall deliver to COHEN on or before three (3) months
after the Effective Date a business plan showing the amount of money,
number and kind of personnel and time budgeted and planned for each
phase of development of the PRODUCTS and PROCESSES corresponding to
each of the TECHNOLOGIES and IMPROVEMENTS thereon and shall provide
similar reports to COHEN on or before December 31 of each year.
(b) The Company shall raise a minimum of Three Million Dollars
($3,000,000) in investment capital on or before May 31, 1993.
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5.3 Unless extended by mutual consent of the parties, the Company's
failure to perform in accordance with Paragraphs 5.1 and 5.2 above shall be
grounds for COHEN to terminate this Agreement upon written notice to the Company
specifying the ground for termination. Any such termination based upon
Paragraph 5.1 or Paragraph 5.2(a) hereof shall become effective ninety (90) days
after the date of the notice of termination, unless the Company shall have cured
any such failure of performance prior to the expiration of such ninety (90) day
period, or unless COHEN shall have previously withdrawn in writing his notice of
termination. Any such termination based upon Paragraph 5.2(b) hereof shall be
effective immediately.
ARTICLE 6 - ROYALTIES
6.1 The Company agrees to pay COHEN royalties on TECHNOLOGIES PRIMARILY
LICENSED FROM THIRD PARTIES and IMPROVEMENTS thereon in consideration for
COHEN's assistance in the initial transfer to the Company of the TECHNOLOGIES
PRIMARILY LICENSED FROM THIRD PARTIES and his assistance in the development of
IMPROVEMENTS thereon, in the following manner:
Running Royalties in an amount equal to One Percent (1%) of the NET
SALES related to TECHNOLOGIES PRIMARILY LICENSED FROM THIRD PARTIES and
IMPROVEMENTS thereon leased or sold by the Company. If the Company sublicenses,
or grants any rights to sublicense, the technology at arms length with an
unrelated company in which the Company holds no equity position, or rights to
acquire equity, to manufacture, sell and market PRODUCTS and/or PROCESSES
related to TECHNOLOGIES PRIMARILY LICENSED FROM THIRD PARTIES and IMPROVEMENTS
thereon in an arrangement in which the Company receives only cash compensation
and does not issue any equity or rights to acquire equity, then the Royalties
due COHEN from the Company shall be Seven Percent (7%) of gross revenue to the
Company from the Sublicensee for the sublicensing of the TECHNOLOGIES or
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IMPROVEMENTS. In any other form of sublicense arrangement, the Royalties due
COHEN from the Company shall be determined by mutual agreement of COHEN and the
Company pursuant to Paragraph 10.4 hereof. In the event of any assignment, the
Royalties or other payments due COHEN shall be determined pursuant to Paragraph
11.3 hereof.
Notwithstanding the foregoing, Royalties in consideration of payments by
third parties to the Company for the granting of any rights to sublicense to the
TECHNOLOGIES or IMPROVEMENTS shall be due and payable to COHEN only if the
granting of such rights results in the third party entering into a definitive
sublicense agreement with respect to the TECHNOLOGIES or IMPROVEMENTS to which
such rights were granted.
6.2 Royalties due COHEN for OTHER TECHNOLOGIES and IMPROVEMENTS thereon
shall be governed by the terms of separate agreements between COHEN and the
Company in regard to such OTHER TECHNOLOGIES and IMPROVEMENTS thereon.
6.3 No multiple royalties shall be payable because any PRODUCT or PROCESS,
its manufacture, use, lease and/or sale are or shall be covered by more than one
agreement between the Company and COHEN. If a PRODUCT or PROCESS is covered by
more than one agreement between the Company and COHEN than the largest royalty
due under any single agreement shall be applicable.
6.4 All royalties due hereunder shall be paid in full, without deduction
of taxes or other fees which may be imposed upon the Company or its sublicensees
by any government; the payment of any such taxes or other fees shall be the
responsibility of the Company or its sublicensees. Notwithstanding the
foregoing, the Company shall not be responsible for the payment of any taxes
which are based on COHEN's royalty or consulting income earned under this
Agreement, the payment of any such taxes shall be the responsibility of COHEN.
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6.5 Payment of royalties hereunder shall not be limited by the term of
COHEN's duty to consult hereunder. The Company's obligations to pay royalties
hereunder are independent obligations of the Company arising out of the sale of
PRODUCTS and PROCESSES by the Company and its sublicensees.
6.6 Royalty payments shall be paid in United States dollars in Waban,
Massachusetts, or at such other place as COHEN may reasonably designate
consistent with the laws and regulations controlling any foreign country.
Payments shall be made within sixty days after the end of each fiscal quarter of
the Company. If any currency conversion shall be required in connection with
the payment of royalties hereunder, such conversion shall be made by using the
exchange rate prevailing at the Chase Manhattan Bank (N.A.) on the last business
day of the calendar quarterly reporting period to which such royalty payments
relate.
6.7 In the event that the Company and COHEN disagree as to the revenue
base for the computation of Royalties due COHEN, the Company and COHEN shall
negotiate in good faith to resolve such disagreement.
ARTICLE 7 - REPORTS AND RECORDS
7.1 The Company shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amounts payable to COHEN hereunder. Said accurate books of account shall be kept
at the Company's principal place of business or the principal place of business
of the appropriate division of the Company to which this Agreement relates. Said
books and the supporting data shall be open at all reasonable times for three
(3) years following the end of the calendar year to which they pertain, to the
inspection of COHEN or his agents for the purpose of verifying the Company's
royalty statement or compliance in other respects with this Agreement. COHEN
shall pay the cost of any such inspection, unless such inspection lead to the
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discovery of a greater than ten percent (10%) discrepancy in reporting, in which
case the Company agrees to pay half the cost of such inspection.
7.2 Within sixty (60) days after the end of each fiscal quarter of the
Company, the Company shall deliver to COHEN true and accurate reports certified
as correct by the Company's chief financial officer, giving such particulars of
the business conducted by the Company and its SUBLICENSEES during the preceding
fiscal quarter under this Agreement as shall be pertinent to a royalty
accounting hereunder. These shall include at least the following:
(a) number of PRODUCTS manufactured and sold by the Company and all
SUBLICENSEEs;
(b) total billings for all PRODUCTS sold by the Company and all
SUBLICENSEEs;
(c) accounting for all PROCESSES used or sold by the Company and all
SUBLICENSEEs;
(d) all payments made by SUBLICENSEEs to the Company and names and
addresses of all SUBLICENSEEs;
(e) deductions applicable as provided in Paragraph 1.5 hereof; and
(f) total royalties due.
7.3 With each such report submitted, the Company shall pay to COHEN the
royalties due and payable under this Agreement. If no royalties shall be due,
the Company shall so report.
7.4 On or before the ninetieth (90) day following the close of the
Company's fiscal year, the Company shall provide COHEN with the Company's
certified financial statements for the preceding fiscal year including, at a
minimum, a Balance Sheet and an Operating Statement certified to by the
Company's independent certified public accountants.
7.5 The royalty payments set forth in this Agreement and amounts due under
Article 6 shall, if overdue, bear interest until payment at a per annum rate two
percent (2%) above the prime rate in effect at the Chase Manhattan Bank
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(N.A.) on the due date. The payment of such interest shall not foreclose COHEN
from exercising any other rights he may have as a consequence of the lateness of
any payment.
ARTICLE 8 - PRODUCT LIABILITY
8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold COHEN, his estate, assigns and heirs,
harmless against all claims and expenses, including legal expenses and
reasonable attorneys' fees, arising out of the death of or injury to any person
or persons or out of any damage to property and against any other claim,
proceeding, demand, expense and liability of any kind whatsoever resulting from
the production, manufacture, sale, use, lease, consumption or advertisement of
the PRODUCT(s) and/or PROCESS(es) or arising from any obligation of the Company
hereunder.
8.2 Before delivery of a PRODUCT, the Company shall obtain and carry in
full force and effect liability insurance which shall protect the Company and
COHEN in regard to events covered by Paragraph 8.1 above. Such insurance shall
be written by a reputable insurance company authorized to do business in the
Commonwealth of Massachusetts, shall list COHEN as an additional named insured
thereunder and shall require thirty (30) days written notice to be given to
COHEN prior to any cancellation or material change thereof. The limits of such
occurrence shall not be less than One Million Dollars ($1,000,000) per
occurrence with an aggregate of Three Million Dollars ($3,000,000) for personal
injury or death, and One Million Dollars ($1,000,000) per occurrence with an
aggregate of Three Million Dollars ($3,000,000) for property damage. The
Company shall provide COHEN with Certificates of Insurance evidencing the same.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, COHEN MAKES
NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS
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OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR
PENDING. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE
OR WARRANTY GIVEN BY COHEN THAT THE PRACTICE BY THE COMPANY OF THE TECHNOLOGIES
OR IMPROVEMENTS SHALL NOT INFRINGE THE TECHNOLOGY OF ANY THIRD PARTY.
ARTICLE 9 - NON-USE OF NAMES
The Company shall not use COHEN's name in any advertising, promotional or
sales literature without prior written consent obtained from COHEN, in each
case, except that the Company may (i) state that COHEN is a consultant to the
Company, (ii) disclose the terms of this Agreement in any financing memorandum
prepared for the purpose of raising investment capital for the Company and (iii)
comply with disclosure requirements of all applicable laws relating to its
business, including United States and state securities laws.
ARTICLE 10 - SUBLICENSES
10.1 The Company shall remain bound by whatever obligations and
restrictions may apply in separate agreements between the Company and COHEN
and/or the Company and third parties regarding the Company's rights to
sublicense one or more of the TECHNOLOGIES and IMPROVEMENTS thereon. This
Agreement confers no additional rights to the Company in this regard.
10.2 The Company agrees that any sublicenses granted by it for the
TECHNOLOGIES and IMPROVEMENTS shall provide that the obligations to COHEN under
Articles 8, 9 and 14 of this Agreement shall be binding upon the SUBLICENSEE as
if it were a party to this Agreement. The Company further agrees to attach
copies of these Articles and Article 1 to sublicense agreements. In addition,
if the Company grants sublicenses for the TECHNOLOGIES and IMPROVEMENTS, to
SUBLICENSEES to make, use and/or sell PRODUCTS or PROCESSES, such sublicenses
shall include obligations of the SUBLICENSEE to account for and report all
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information needed by the Company to comply with the reporting requirements of
Article 7 hereof.
10.3 The Company agrees to promptly forward to COHEN a copy of any and all
sublicense agreements for the TECHNOLOGIES and IMPROVEMENTS.
10.4 The Company agrees not to sublicense its rights to any of the
TECHNOLOGIES or IMPROVEMENTS other than at arms length with unrelated companies
in which the Company holds no equity position, or rights to acquire equity, in
arrangements in which the Company receives only cash compensation and does not
issue any equity or rights to acquire equity, without the prior written consent
of COHEN. In connection with obtaining COHEN's consent to any other form of
sublicense arrangement, the Company shall enter into a written agreement with
COHEN specifying COHEN's rights to receive royalties and/or other consideration
as the result of such sublicense arrangement. The parties hereto hereby agree
to negotiate in good faith with respect to COHEN's rights to receive royalties
and/or other consideration.
ARTICLE 11 - ASSIGNMENT
11.1 The Company may assign this Agreement in its entirety to a party to
whom it sells or transfers substantially all of its assets, including the
Technologies and Improvements. In any such assignment assignee shall assume all
obligations of the Company. The Company agrees to forward promptly to COHEN a
copy of any agreement to assign this Agreement.
11.2 The Company shall be bound by whatever obligations and restrictions
may apply in separate agreements between the Company and COHEN and/or between
the Company and third parties regarding the Company's rights to assign the
rights to one or more of the TECHNOLOGIES and IMPROVEMENTS thereon. This
Agreement confers no additional rights to the Company in this regard.
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11.3 Except as set forth in Paragraph 11.1 hereof, the Company agrees not
to assign any of its rights to any of the TECHNOLOGIES or IMPROVEMENTS without
the prior written consent of COHEN. In connection with obtaining COHEN's
consent to any such assignment, the Company shall enter into a written agreement
with COHEN specifying COHEN's rights to receive royalties and/or other
consideration as the result of such assignment. The parties hereto hereby agree
to negotiate in good faith with respect to COHEN's right to receive any such
royalty and/or other consideration. The Company further agrees that any
assignment of the rights to one or more of the TECHNOLOGIES and IMPROVEMENTS
thereon permitted by the terms hereof shall provide that the obligations to
COHEN under Articles 5, 7, 8, 9, 10, 11, 12, 13, 14, and 15 shall be binding on
assignee(s) as if assignee(s) were a party to this Agreement. The Company
further agrees to attach copies of these Articles and Article 1 to assignment
agreements. Assignment of rights to one or more of the TECHNOLOGIES and
IMPROVEMENTS thereon shall not confer to assignee(s) any consulting obligations
by COHEN.
11.4 The Company agrees to forward promptly to COHEN a copy of any and all
assignment agreements for one or more of the TECHNOLOGIES and IMPROVEMENTS
thereon.
11.5 Without limitation of the foregoing, no assignment shall relieve the
Company of any duty or obligation which has matured prior to the date of the
assignment. Without limitation of the foregoing, the Company shall remain liable
under Paragraph 8.1 hereof for products manufactured, leased, and/or sold by the
Company and/or the Company's SUBLICENSEES, and shall remain bound by Paragraph
8.2 hereof.
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11.6 COHEN may assign the consulting retainer and royalties and/or other
payments he receives under this Agreement but may not assign his obligations
hereunder.
ARTICLE 12 - DISPUTE RESOLUTION
12.1 For any and all claims, disputes or controversies arising under, out
of, or in connection with this Agreement, including any dispute related to
patent validity or infringement, which the parties shall be unable to resolve
within sixty (60) days, the party raising such dispute shall promptly advise the
other party of such claim, dispute or controversy in a writing which describes
in reasonable detail the nature of such dispute. By not later than five (5)
business days after the recipient has received such notice of dispute, each
party shall have selected for itself a representative who shall have the
authority to bind such party, and shall additionally have advised the other
party in writing of the name and title of such representative. By not later
than ten (10) business days after the date of such notice of dispute, such
representatives shall schedule a date for a mediation with the Cambridge Dispute
Settlement Center or Endispute Inc. in Cambridge, Massachusetts. If the
representatives of the parties have not been able to resolve the dispute within
fifteen (15) business days after such mediation hearing, the parties shall have
the right to pursue any other remedies legally available to resolve such dispute
in either the Courts of the Commonwealth of Massachusetts or in the United
States District Court for the District of Massachusetts, to whose jurisdiction
for such purposes COHEN and the Company each hereby irrevocably consents and
submits.
12.2 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
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ARTICLE 13 - TERMINATION
13.1 If the Company shall cease to carry on its business, this
Agreement shall terminate upon notice by COHEN.
13.2 Should the Company fail to make any payment whatsoever due and
payable to COHEN hereunder, COHEN shall have the right to terminate this
Agreement effective on thirty (30) days' notice, unless the Company shall make
all such payments to COHEN within said (30) day period. Upon the expiration of
the thirty (30) day period if the Company shall not have made all such payments
to COHEN, the rights and privileges granted to the Company hereunder shall
automatically terminate unless COHEN shall have previously withdrawn in writing
his notice of termination.
13.3 In addition to the rights of COHEN set forth in Paragraph 5.3
hereof, upon any material breach or default of this Agreement by the Company,
other than those occurrences set out in Paragraphs 13.1 and 13.2 hereinabove,
which shall always take precedence in that order over any material breach or
default referred to in this Paragraph 13.3, COHEN shall have the right to
terminate this Agreement and the rights and privileges granted to the Company
hereunder effective on ninety (90) days' notice to the Company. Such
termination shall become automatically effective unless the Company shall have
cured any such material breach or default prior to the expiration of the ninety
(90) day period, or unless COHEN shall have previously withdrawn in writing his
notice of termination.
13.4 The Company may terminate this Agreement for material breach or
default by COHEN of his obligations under this Agreement, upon ninety (90) days
notice to COHEN. Such termination shall become automatically effective unless
COHEN shall have cured any such material breach or default prior to the
expiration of the ninety (90) day period. In addition, the Company shall have
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the right to immediately terminate the Consulting Period "for cause" upon
written notice to COHEN in the event that COHEN (a) is convicted of an act of
fraud or embezzlement or (b) is convicted of any felony.
13.5 The Company shall have the right, in its sole discretion, to
terminate this Agreement at anytime upon thirty (30) days' written notice to
COHEN; provided, that such notice of termination is delivered on or before May
31, 1993. In the event that the Company terminates this Agreement pursuant to
this Section 13.5, the Company shall simultaneously relinquish any and all
rights to the TECHNOLOGIES and IMPROVEMENTS thereon which the Company has
acquired from third parties or from COHEN.
13.6 Upon termination of this Agreement for any reason, nothing
herein shall be construed to release either party from any obligation that
matured prior to the effective date of such termination. Upon termination of
this Agreement COHEN's obligations to consult for the Company under Article 2
shall cease. Upon termination of this Agreement for any reason the Company
remains obligated to pay all CASH COMPENSATION AND REIMBURSEMENTS to COHEN due
under Article 4 through the termination date. Termination of this Agreement for
any reason shall not affect the Company's obligation to pay ROYALTIES to COHEN
under Article 6 as well as the Company's obligations to COHEN under Articles 7,
9, 10, 11, 12, 13, and 15 and Paragraphs 3.2, 3.3, 5.1, 5.2(a), 8.1, 8.2 hereof.
Termination of this Agreement shall not release COHEN from his obligations under
Paragraph 3.5 hereof.
ARTICLE 14 - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such party
by certified first class mail, postage prepaid, addressed to it at its address
below or as it shall designate by written notice given to the other party:
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In the case of COHEN:
Richard Jonathan Cohen, M.D., Ph.D.
133 Collins Road
Waban, Massachusetts 02168
In the case of the Company:
Chief Executive Officer
CAMBRIDGE HEART, Inc.
645 Madison Avenue
14th Floor
New York, NY 10022
ARTICLE 15 - MISCELLANEOUS PROVISIONS
15.1 This Agreement shall be construed, governed, interpreted and applied
in accordance with the laws of the Commonwealth of Massachusetts, U.S.A., except
that questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
15.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
15.3 The provisions of this Agreement are severable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
15.4 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
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15.5 The Company recognizes that COHEN is a university faculty member
currently at MIT. For so long as COHEN is employed in such capacity at MIT or
employed by another Not-for-Profit which will permit COHEN to perform his
obligations hereunder, COHEN shall be permitted, without limitation or
restriction, to continue to teach, conduct research, write grant applications,
administer grant funds, assist in protecting and transferring inventions and
copyrightable materials developed at MIT or such other Not-For-Profit, deliver
lectures, and publish papers. In rendering consulting services to the Company
hereunder, COHEN shall be permitted to conduct his activities in such manner as
may be necessary for COHEN to fully comply with MIT's "Policies and Procedures:
A Guide for Faculty and Staff" (appended). The Company also recognizes that
COHEN is (i) a member of the board of directors, head of the medical advisory
board of, and consultant to Vital Heart Systems, Inc., and (ii) a lecturer at
various seminars conducted by and/or for commercial organizations as well as
Not-for-Profits. Subject to Paragraphs 2.2(i), 2.6 and 3.5 hereof, COHEN shall
be permitted to continue to (i) perform services for Vital Heart Systems, Inc.
in his current capacities and (ii) lecture at seminars, and COHEN shall not be
deemed to be in violation or breach of his obligations under Paragraph 2.2(ii)
hereof by virtue of such activities.
15.6 This Agreement shall inure to the benefit of, and be binding upon,
COHEN, the Company, the Company's successors and assigns, and COHEN's
successors, assigns and heirs.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement the day
and year set forth below.
Agreed to for:
RICHARD JONATHAN COHEN CAMBRIDGE HEART, INC.
By: /s/ R.S. Cohen By: /s/ M.R. Krauss
----------------------------- -----------------------------
Date: February 8, 1993 Name:
--------------------------- ---------------------------
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APPENDIX
POLICIES and PROCEDURES, A Guide for Faculty and Staff Members;
Massachusetts Institute of Technology
March 1990
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of September 1, 1993, between CAMBRIDGE
HEART, INC., a Delaware corporation with offices c/o KBL Healthcare, Inc., 645
Madison Avenue, New York, New York 10022 (the "Company"), and JEFFREY M. ARNOLD
residing at 34 Bancroft Road, Wellesley, MA 02181 ("Employee").
The Company desires to engage Employee to perform services for the Company
or, at the direction of the Company, any present or future parent or subsidiary
of the Company, and (subject to Section 11) any successor or assign of any of
them (the "Corporations") and Employee desires to perform such services, on the
terms and conditions hereinafter set forth.
1. Term
----
The Company agrees to employ Employee, and Employee agrees to serve, on the
terms and conditions of this Agreement for a period commencing as of the date
hereof (the "Commencement Date") and ending five (5) years from such date, or
such shorter period as may be provided for herein. The period during which
Employee is employed hereunder is hereafter referred to as the "Employment
Period." Not later than three months prior to the fifth anniversary of the
Commencement Date, the Company shall notify the Employee whether it wishes to
extend the term of Employee's employment by the Company hereunder.
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2. Duties and Services
-------------------
(a) During the Employment Period, Employee shall be employed by the Company
as its President and Chief Executive Officer, and shall also perform services
commensurate with such office in a responsible executive or managerial capacity
for any of the other Corporations as reasonably requested by the Company, which
duties shall be consistent with the provisions of the By-laws in effect on the
date hereof that relate to the duties of the President and Chief Executive
Officer. In performance of his duties, Employee shall be subject to
the direction of the Board of Directors of the Company. Employee agrees to his
employment as described in this Section 2 and agrees to devote his full business
time and attention to the performance of his duties under this Agreement, except
as provided in subparagraph (c) below and excepting disabilities, illness, and
vacation time as provided by Sections 3 and 4. In performing his duties
hereunder, Employee shall be available for reasonable travel as the needs of the
Company require. The principal place of employment of Employee hereunder shall
at all times during the term of this Agreement be in the greater Boston,
Massachusetts area, or other locations acceptable to Employee, in his sole
discretion.
(b) During the Employment Period, the Company shall cause Employee to be
nominated to serve as a member of the Company's Board of Directors each time
that elections of the Board of Directors are held.
(c) The Company acknowledges that (i) Employee has agreed to be available
to provide consulting services to his former employer, Momentum Software, Inc.
("Momentum"), at the rate of one day each month, if requested by Momentum, and
Employee will be required to attend meetings of the Board of Directors of
Momentum, for so long as Employee continues to be a member of the Board of
Directors of Momentum. The Company agrees that Employee may continue
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to provide consulting services to Momentum and to serve on Momentum's Board of
Directors, as described in the preceding sentence, during the Employment Period.
Notwithstanding anything to the contrary herein, although Employee shall provide
services as a full time employee, it is understood that Employee may (1) have
non full-time academic appointments; (2) participate in professional activities;
(3) be a member of the scientific or medical advisory board or the Board of
Directors of other companies; and (4) publish academic articles (collectively,
"Permitted Activities"); provided, however, that such Permitted Activities do
not interfere with Employee's duties to the Company, or result in a breach of
Sections 6, 7 or 8 of this Agreement; provided further, however, that prior to
accepting membership on the Board of Directors or the scientific or medical
advisory board of any other company, Employee shall obtain the consent of the
Company's Board of Directors, which consent shall not be unreasonably withheld.
3. Compensation; Benefits
----------------------
(a) As compensation for his services hereunder, the Company shall pay
Employee, during the Employment Period, a base salary payable monthly at the
rate of $12,500 per month. For each year of the Employment Period, Employee
shall be given an opportunity to earn a performance-based bonus in accordance
with an executive bonus plan approved by the Company's Board of Directors and
based on factors to be measured as of the end of each calendar year commencing
with the calendar year ending December 31, 1994; such bonus to be earned as of
December 31 of each such year and paid prior to January 31 of the following
year. The amount of such performance-based bonuses shall be $25,000 for the
first two years of the Employment Period and $50,000 for each subsequent year of
the Employment Period. To the extent that a calendar year for which a bonus is
payable hereunder includes years of the Employment Period for which different
rates of bonus may be earned, the amount of bonus payable for such year shall
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be a blended amount. Furthermore, the first such bonus, to be earned as of
December 31, 1994, shall be increased by the amount of bonus which could have
been earned by Employee during the period from the commencement of the
Employment Period to December 31, 1993, if the Company had a bonus plan in
effect during such period. For all bonuses payable hereunder, in the event that
the Employee shall not be employed by the Company throughout an entire calendar
year for which a bonus is to be paid, the Employee shall be entitled to receive
only a pro rata share of such annual bonuses based upon the number of weeks
during such calendar year that the Employee was employed, calculated at the rate
of bonus in effect during such period that the Employee was employed. The
Company shall review the Employee's performance and the performance of the
Company annually, and the Employee's salary may be increased, at the discretion
of the Company, on the basis of such review.
(b) Upon the commencement of the Employment Period, the Employee shall be
granted options to purchase an aggregate of 1,232,326 shares of Common Stock of
the Company, par value $.001 per share. Of such options 1,050,000 shall have an
exercise price of at a price of $.01 per share, and 182,326 shall be granted by
the Company as "incentive stock options" within the meaning of Section 422A of
the Internal Revenue Code of 1986, as amended, and have an exercise price of
$1.00 per share, which price, based on the $1.00 per share price that the
Company is concurrently offering shares of its Series A Convertible Preferred
Stock in a private placement, is in excess of the fair market value of the
Company's Common Stock. Except as otherwise provided herein, such options shall
vest and become exercisable by the Employee at the rate of 210,000 shares per
year and 36,465.2 shares per year, respectively, over a period of five (5) years
from April 26, 1993, with options to purchase an aggregate of 246,465.2 shares
first becoming exercisable April 26, 1994. To the
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<PAGE>
maximum extent conditions for eligibility under Rule 701(b) under the Securities
Act of 1933, as amended (the "Act"), are satisfied in connection with the grant
of such options or the sale of shares issuable upon exercise of such options (it
being acknowledged that such grant and such sale are pursuant to a written
contract relating to compensation), the Company shall comply promptly with the
notice requirements of Rule 702T under the Act and shall otherwise treat such
grant and sale as made pursuant to Rule 701.
In the event that the Company terminates Employee's employment prior to
April 26, 1994 pursuant to Section 10(c) hereof, options to purchase 246,465.2
shares (which otherwise would become exercisable on April 26, 1994) shall vest
and become exercisable upon such termination. In the event that the Company
terminates Employee's employment at any time on or after April 26, 1994 and
prior to April 26, 1998, pursuant to Section 10(c) hereof, the aggregate number
of options which shall be deemed to have vested prior to such date shall be a
number determined by multiplying 1,232,326 by a fraction, the numerator of which
shall be the number of months from April 26, 1993 to the effective date of the
termination of the Employment Period, and the denominator of which shall be 48;
provided, however, that in no case shall the aggregate number of options deemed
to have become vested exceed 1,232,326. In lieu of the acceleration provided
for in the preceding sentence, in the event of the liquidation or Change of
Control (as defined below), of the Company, the Employee's vesting in the
options referred to herein shall accelerate to the next annual vesting date
following such liquidation or Change of Control, plus one year.
All options and shares issuable upon exercise of options shall be adjusted
for stock dividends, stock splits, combinations and similar events.
For purposes of this Agreement, "Change of Control" means the occurrence of
any of the following events:
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<PAGE>
(i) Any corporation, person or other entity makes a tender or exchange
offer for any shares of the Company's capital stock, of any class or series,
pursuant to which such corporation, person or other entity acquires or controls
more than 50% of the issued and outstanding shares of the Company's voting stock
(assuming the conversion of all shares of preferred stock convertible into
Common Stock);
(ii) The stockholders of the Company approve a definitive agreement to
merge or consolidate the Company with or into another corporation or to sell or
otherwise dispose of all or substantially all of the Company's assets, unless
upon the consummation of any such merger or consolidation, the holders of the
Company's securities immediately prior to the consummation of such transaction
hold securities in excess of fifty percent (50%) of the issued and outstanding
voting securities of the surviving or resulting entity (assuming the conversion
of all shares of preferred stock convertible into Common Stock); or
(iii) Any person within the meaning of Section 3(a)(9) or Section 13(d)(3)
of the Securities Exchange Act of 1934 acquires more than 50% of the Company's
issued and outstanding voting stock (assuming the conversion of all shares of
preferred stock convertible into Common Stock).
All options to be granted to the Employee hereunder shall (i) expire ten
years from the date of grant and, in the event of the termination of Employee's
employment with the Company, the portions of such options that are then vested
and exercisable (including any portion that is accelerated pursuant to the above
provisions of this paragraph or other provisions of this Agreement) shall remain
vested and exercisable until ten years after the date of grant, regardless of
the circumstances under which Employee's employment terminates; (ii) be granted
under the Company's 1993 Employee Incentive and Non-Qualified Stock Option Plan
(the "Plan") and shall be subject to the general terms and conditions of the
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<PAGE>
Plan; (iii) contain a provision permitting the option exercise price to be paid
by the Employee using any of the payment methods specified in Section 6(b) of
the Plan; and (iv) contain a provision permitting any "incentive stock options"
to be converted to nonqualified stock options by the Employee exercising such
Options after the expiration of any required incentive stock option exercise
period, or otherwise.
In the event that any of the provisions of this Section 3(b) at anytime
conflict with the provisions of the Plan or any Stock Option Agreement
evidencing the granting of the stock options contemplated by this Section 3(b),
the provisions of this Agreement shall be controlling, and the Company shall use
its best efforts to amend the Plan or such Stock Option Agreement, as necessary,
to conform to this Agreement.
The Company hereby agrees that, in the event the Company contemplates
completing any equity offerings during the Employment Period, other than in
connection with the private placement of its Series A Convertible Preferred
Stock which is currently in progress, the Board of Directors shall, prior to
such financing, and in any case prior to July 1, 1995, consider granting
additional stock options to the Employee. The granting of any such stock
options to the Employee shall be based upon the Employee's performance.
Notwithstanding anything contained herein, the Board shall not be under any
obligation to grant the Employee any additional options.
(c) Employee shall be entitled to participate in all group health and other
insurance programs and all other fringe benefit or retirement plans or other
compensatory plans which the Company may hereafter, in its sole and absolute
discretion, elect to make available to its employees generally on terms no less
favorable than those provided to other employees generally, provided Employee
meets the qualifications therefor, but the Company shall not be
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<PAGE>
required to establish any such program or plan, except as provided in this
Section 3.
(d) Employee shall be entitled to reasonable vacations in accordance with
the then regular procedures of the Company governing executives.
4. Expenses The Company shall pay or reimburse Employee for all
--------
reasonable travel and other out-of-pocket expenses necessarily incurred in the
performance of his duties hereunder, upon submission and approval of written
statements and bills in accordance with the then regular procedures of the
Company.
5. Representations and Warranties of Employee
------------------------------------------
Employee represents and warrants to the Company that Employee is under no
contractual or other restriction or obligation which is inconsistent with the
execution of this Agreement, the performance of his duties hereunder, or the
other rights of the Company hereunder.
6. Non-Competition; Non-Solicitation
---------------------------------
In view of the unique and valuable services it is expected Employee will
render to the Company, Employee's knowledge of the customers, trade secrets, and
other proprietary information relating to the business of the Company and its
customers and suppliers and similar knowledge regarding the Company it is
expected Employee will obtain, and in consideration of the compensation to be
received hereunder, Employee agrees that he will not, during the period he is
employed by the Company under this Agreement or any period of continued
employment by the Company following the expiration of this Agreement, and, if
Employee's employment hereunder is terminated (i) by the Company for cause
pursuant to Section 10(a) hereof or (ii) by Employee other than pursuant to
Section 10(d) hereof, for a period of twelve months after he ceases to be so
employed by the Company, compete with, or be engaged in the same business as,
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<PAGE>
or Participate In (as defined below), any other business or commercial entity
(which shall not include a university, hospital, or other non-profit
organization) engaged primarily in the Company's Field of Interest (as defined
below) which during the period he is employed by the Company under this
Agreement or any period of continued employment by the Company following the
expiration of this Agreement competes with, or is engaged in the Company's Field
of Interest, with respect to any product or service sold, or activity engaged in
up to the time of such cessation, in any geographic area in which, at the time
of such cessation, such product or service is sold or activity engaged in by the
Company; provided, however, that the provisions of this Section 6 will not be
deemed breached merely because Employee owns less than 1% of the outstanding
common stock of a corporation in the Company's Field of Interest, if, at the
time of its acquisition by Employee, such stock is listed on a national
securities exchange, is reported on NASDAQ, or is regularly traded in the over-
the-counter market by a member of a national securities exchange; and provided,
further, that the provisions of this Section 6 will not be breached if
Employee's employment with the Company is terminated because the Company becomes
a subject of a proceeding under the Federal Bankruptcy Code, and, subsequent to
such termination, Employee competes with, engages in the same business as, or
Participates In any other business engaged primarily in the Company's Field of
Interest which competes with, intends to compete with, or is engaged in business
in the same Field of Interest as the Company. The term "Participate In" shall
mean: "directly or indirectly, for his own benefit or for, with, or through any
other person (including Employee's immediate family), firm, or corporation, own,
manage, operate, control, loan money to, or participate in the ownership,
management, operation, or control of, or be connected as a director, officer,
employee, partner, consultant, agent,
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<PAGE>
independent contractor, or otherwise with, or acquiesce in the use of his name
in." The Company's "Field of Interest" means (i) the Company's proposed
products as described in the Company's April 30, 1993 Private Placement
Memorandum, and (ii) any other product (a "New Product") which the Company seeks
to develop or commercialize during the period he is employed by the Company
under this Agreement or any period of continued employment by the Company
following the expiration of this Agreement if (A) more than 10% of the gross
revenues of the Company are derived from any such New Product or group of
related New Products or (B) more than 10% of (x) the Company's research and
development expenses or (y) the Company's total costs and expenses are
associated with any such New Product or group of related New Products.
Employee agrees that during the period he is employed by the Company under
this Agreement or any period of continued employment by the Company following
the expiration of this Agreement, and for a twelve-month period after he ceases
to be so employed by the Company, he will not directly or indirectly (i) reveal
the name of, interfere with, or endeavor to solicit or entice away from the
Company any of its suppliers, customers, or employees or (ii) employ any person
who was an employee of the Company within a period of one year after such person
leaves the employ of the Company.
Since a breach of the provisions of this Section 6 could not adequately be
compensated by money damages, the Company shall be entitled, in addition to any
other right and remedy available to it, to an injunction restraining such breach
or a threatened breach, and in either case no bond or other security shall be
required in connection therewith. Employee agrees that the provisions of this
Section 6 are necessary and reasonable to protect the Company in the conduct of
its business. If any restriction contained in this Section 6 shall be deemed to
be invalid, illegal, or unenforceable by reason of the extent,
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<PAGE>
duration, or geographical scope thereof, or otherwise, then the court making
such determination shall have the right to reduce such extent, duration,
geographical scope, or other provisions hereof, and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby.
7. Patents, etc.
-------------
Any interest in patents, patent applications, inventions, technological
innovations, copyrights, copyrightable works, developments, discoveries,
designs, and processes which Employee may conceive or develop (a) during the
period he is employed by the Company under this Agreement or any period of
continued employment by the Company following the expiration of this Agreement
in the fields in which the Company may then be engaged or contemplates (as
demonstrated by the records of the Company) or (b) during the period he is
employed by the Company under this Agreement or any period of continued
employment by the Company following the expiration of this Agreement, and for
one year thereafter utilizing the time, material, facilities, or information of
the Company ("Such Inventions"), shall belong to the Company. As soon as
Employee owns, conceives of, or develops any Such Invention, he agrees
immediately to communicate such fact in writing to the Secretary of the Company,
and without further compensation, but at the Company's expense, forthwith upon
request of the Company, Employee shall execute all such assignments and other
documents (including applications for patents, copyrights, trademarks, and
assignments thereof) and take all such other action as the Company may
reasonably request in order (a) to vest in the Company all Employee's right,
title, and interest in and to Such Inventions, and (b), if patentable or
copyrightable, to obtain patents or copyrights (including extensions and
renewals) therefor in any and all countries in the name of the Company or any
co-inventor or co-author, as determined by the Company.
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<PAGE>
8. Confidential Information
------------------------
During the course of his association with the Company under this Agreement
or otherwise, the Employee shall become privy to "confidential information" of
the Company and others. As used in this Section 8, "confidential information"
shall mean any information except that information which is generally known by
the Company's principal competitors or which is generally available to the
public, or later becomes public or known by the Company's principal competitors
without the breach by Employee of this Section 8 or shall be known by Employee
other than through his association with the Company or within Employee's
possession prior to being furnished to Employee pursuant to his association with
the Company, and shall include, without limitation, technical data, designs,
software, customer information, business plans, market data, trade secrets or
the like of the Company, whether or not any such document or information is
marked "confidential." All such confidential information which Employee may
now possess or may obtain or create prior to the end of the period he is
employed by the Company under this Agreement, or of any third party doing
business with the Company (including, without limitation, licensors, licensees,
customers, suppliers and collaborators) shall not be published, disclosed, or
made accessible by him to any other person, firm, or corporation either during
or after the termination of his employment or used by him except during the
Employment Period in the business and for the benefit of the Company, in each
case without prior written permission of the Company. Employee shall return all
physical evidence of such confidential information to the Company prior to or at
the termination of his employment.
Employee may disclose any confidential information that is required to be
disclosed by law, government regulation or court order. If disclosure is
required, Employee shall if reasonably possible give the Company advance notice
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so that the Company may seek a protective order or take other action reasonable
in light of the circumstances.
9. Life Insurance
--------------
If requested by the Company, Employee shall submit to such physical
examinations and otherwise take such actions and execute and deliver such
documents as may be reasonably necessary to enable the Company, at its expense
and for its own benefit, to obtain life insurance on the life of Employee.
Employee has no reason to believe that his life is not insurable with a
reputable insurance company at rates now prevailing in the City of Boston for
healthy men of his age.
10. Termination
-----------
(a) Notwithstanding anything to the contrary herein contained, if on or
after the Commencement Date and prior to the end of the term of this Agreement,
either (i) Employee shall be convicted of a crime of moral turpitude or a
felony, (ii) Employee shall engage in willful misconduct or continual neglect in
connection with the performance of his duties hereunder, provided that such
condition remains uncured for a period of twenty days after written notice
describing the same is given to Employee and that isolated and insubstantial
failures shall not constitute "cause" hereunder, (iii) Employee breaches the
material term of Sections 5, 6, 7 or 8 of this Agreement and shall fail to
correct such breach within 20 days after written notice by the Company to
Employee of his commission of the same, then, and in each such case
(constituting "cause"), the Company shall have the right to give written notice
of termination of Employee's services hereunder as of a date (not earlier than
30 days from such notice) to be specified in such notice and the Employment
Period shall terminate on the date so specified, whereupon Employee or his
estate, as the case may be, shall be entitled to receive his compensation at the
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rate then provided pursuant to Section 3(a) hereof earned to the date on which
termination shall take effect, and any other cash and stock bonus, incentive and
performance compensation and awards for or in respect of all prior periods if
not theretofore paid or delivered, and any other benefits, awards or
compensation to which Employee shall have a vested right under the terms of the
agreement, plan or program pursuant to which such benefits were granted. All
determinations of any such cause for termination pursuant to this Section 10(a)
shall require at least two-thirds vote of the members of the Board of Directors
other than the Employee.
(b) The Employment Period shall terminate on the date of Employee's death,
or, at the option of the Company, in the event Employee shall be physically or
mentally incapacitated or disabled or otherwise unable substantially to
discharge his duties hereunder for a period of six months, whereupon Employee or
his estate or personal representative, as the case may be, shall be entitled to
receive all his compensation at the rate then provided pursuant to Section 3(a)
hereof (including cash and stock bonuses, incentive and performance compensation
and awards) pro-rated to the date on which termination shall take effect, and
any other benefits, awards or compensation to which Employee shall have a vested
right under the terms of the agreement, plan or program pursuant to which such
benefits were granted. Notwithstanding such disability, the Company shall
continue to pay Employee all compensation during such six-month period and
through the date of such termination.
(c) Notwithstanding anything to the contrary herein contained, on or after
any date falling 90 days prior to the first anniversary of the Commencement Date
but prior to the end of the Employment Period, the Company shall have the right
to give written notice of the termination of Employee's services hereunder as of
a date (not earlier than 90 days from such notice) to
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be specified in such notice and the Employment Period shall terminate on the
date so specified. In the event that the Company terminates the Employment
Period pursuant to this subsection 10(c) or this Agreement shall not be renewed
upon the expiration hereof, then in either such case (i) except as otherwise
provided in Section 11 below, the Company shall pay to the Employee, upon such
termination, a lump sum cash amount equal to the product of (x) the Employee's
monthly salary at the rate in effect on the date that written notice of
termination is given by the Company multiplied by (y) nine; and (ii) the Company
shall continue to be responsible for paying the cost of any medical insurance
benefits then provided to or for the benefit of Employee or his family at the
Company's expense, until the earlier of (x) nine months from the date of
termination of Employee's employment, and (y) the date on which Employee
commences full-time employment with another employer, (iii) all cash and stock
bonus, incentive and performance compensation and awards for or in respect of
all prior periods if not theretofore paid or delivered shall be paid or
delivered to Employee, and all cash and stock bonus, incentive and performance
compensation and awards in respect of the then current period shall be pro-rated
to the date on which such termination shall take effect, (iv) the vesting of the
options referred to in Section 3 above shall accelerate as provided in Section
3(b) above, and (v) the Company shall pay to or deliver to Employee any other
benefits, awards or compensation to which Employee shall have a vested right
under the terms of the agreement, plan or program pursuant to which such
benefits were granted.
(d) Employee may terminate this Agreement on not less than 60 days' prior
written notice to the Company if any one or more of the following shall occur:
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(1) material diminution of Employee's duties and authority by the Company,
without the Employee's prior consent, and such duties and authority are not
restored for twenty days after written notice of such action is given by
Employee to the Company and that isolated and insubstantial changes in
Employee's duties and responsibilities shall not give rise to any such right of
termination;
(2) a material breach of the terms of this Agreement by the Company or any
other material agreement with Employee (including without limitation failure to
pay or deliver compensation or other material amounts due hereunder) and such
breach continues uncured for twenty days after written notice of such breach is
first given by Employee to the Company;
(3) a Change in Control occurs; provided, that Employee gives notice of
termination within 90 days after such occurrence; or
(4) Employee is not continuously a member of the Board of Directors and the
President and Chief Executive Officer of the Company during the term of this
Agreement; Employee is not the highest ranking executive officer of the Company
with the power, subject to the direction of the Board of Directors, to appoint
and remove all other employees of the Company; the retention of any senior
executive officer by the Company, or an offer to pay compensation to any senior
executive of the Company that in either case is unacceptable to Employee, in his
reasonable judgment; provided that Employee gives written notice of termination
to the company within twenty days after such occurrence and such prohibited
event is not remedied within twenty days of such notice.
In the event of such termination by Employee, then Employee shall be
entitled to receive (in addition to all other remedies, damages or relief to
which he might otherwise be entitled by law, in equity or otherwise),
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all amounts which would have been payable or deliverable under Section 10(c) had
Employee's employment been terminated by the Company without cause.
11. Merger, etc.
------------
In the event of a future disposition of (or including) the properties and
business of the Company, substantially as an entirety, by merger, consolidation,
sale of assets or otherwise (unless upon the consummation of any such merger or
consolidation, the holders of the Company's securities immediately prior to the
consummation of such transaction hold more than fifty percent (50%) of the
issued and outstanding voting securities of the surviving or resulting entity
(assuming the conversion of all shares of preferred stock convertible into
Common Stock), then the Company may elect, subject to Employee's right to
terminate pursuant to Section 10(d) above, to assign this Agreement and all of
its rights and obligations hereunder to the acquiring or surviving entity;
provided, that Employee consents in writing to such assignment. Any such
consent by Employee may include, among others, the following conditions: (i)
that such entity shall assume in writing all of the obligations of the Company
hereunder; (ii) that the Company (in the event and so long as it remains in
existence) shall remain liable for the performance of its obligations hereunder
in the event of a breach by the acquiring entity of this Agreement; and (iii)
assurance satisfactory to Employee that he will be able to continue to have or
receive the benefits comparable to those to be afforded to him hereunder,
including without limitation, provisions with respect to his status and office
with the Company and his salary and other forms of compensation, from the
acquiring or surviving entity, and for such purposes all of the options granted
to Employee shall survive any such transaction, whether or not vested, and shall
be exchanged for comparable options expiring not later than ten years from the
original date of grant, to purchase shares of the
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acquiring or surviving entity. In the event that the Company or any such
successor elects to terminate this Agreement pursuant to Section 10(c) hereof in
connection with, or after the consummation of, any such disposition, the amount
of the payment due under said Section 10(c)(i) shall be equal to the product of
(x) the Employee's monthly salary at the rate in effect on the date that written
notice of termination is given by the Company or such successor, multiplied by
(y) twelve.
12. Indemnification.
---------------
The Company shall indemnify Employee, to the maximum extent permitted by
applicable law, against all costs, charges and expenses incurred or sustained by
him in connection with any action, suit or proceeding to which he may be made a
party by reason of being an officer, director or employee of the Company or of
any subsidiary of the Company if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
13. Excise Tax.
----------
If any payments made to or in respect of this Agreement, or otherwise in
respect of his employment by the Company, become subject to the excise tax
described in Internal Revenue Code 4999, the Company shall make a special loan
(the "Loan") to him sufficient, on an after-tax basis (taking into account
federal, state and local taxes and related interest and penalties), to pay 50%
of such excise taxes. The Loan shall be secured by, and the Company shall have
recourse only to, the Common Stock owned by Employee (including Common Stock
underlying stock options) and shall be due 10 years from the date made;
provided, however, that upon each sale of shares of Common Stock an amount equal
to 50% of the proceeds of such sale in excess of Employee's basis in such
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shares shall be applied to reduce the principal amount of the Loan. The Loan
shall be interest free. Employee shall cooperate with the Company to enable the
Company to perfect the security interest referred to herein.
14. No Mitigation.
-------------
Employee shall not be required to mitigate the amount of any payment
provided for hereunder by seeking other employment or otherwise, nor shall the
amount of any payment provided for hereunder be reduced by any compensation
earned by Employee as the result of employment by another employer after the
date of termination of his employment by the Company.
15. Legal Costs.
-----------
If Employee institutes any legal action to enforce his rights under, or to
recover damages for breach of, this Agreement, and Employee prevails, he shall
be entitled to recover from the Company any actual expenses for fees and
disbursements of attorneys, accountants and other professionals incurred by him.
If any payment made to or in respect of Employee pursuant to this Section 15
becomes subject to any tax, the Company shall make a special payment to him
sufficient, on an after-tax basis (taking into account federal, state and local
taxes and related interest and penalties), to put him in the same position as
would have been the case had such taxes been applicable to any payments or
benefits provided in this subsection.
16. Survival
--------
The covenants, agreements, representations and warranties of the Employee
and the Company contained in or made pursuant to this Agreement shall survive
Employee's termination of employment as provided herein.
17. Entire Agreement; Modification
------------------------------
This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements
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between them concerning such subject matter, and may be modified only by a
written instrument duly executed by each party.
18. Notices
-------
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or delivered against receipt to the party to whom it is to be
given at the address of such party set forth in the preamble to this Agreement
(or to such other address as the party shall have furnished in writing in
accordance with the provisions of this Section 18). Notice to the estate of
Employee shall be sufficient if addressed to Employee as provided in this
Section 18. Any notice or other communication given by certified mail shall be
deemed given three days after the time of certification thereof, except for a
notice changing a party's address which shall be deemed given at the time of
receipt thereof.
19. Waiver
------
Any waiver by either party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions shall not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing, signed by the
party giving such waiver.
20. Binding Effect
--------------
Employee's rights and obligations under this Agreement shall not be
transferable by assignment or otherwise, such rights shall not be subject to
commutation, encumbrance, or the claims of Employee's creditors, and any attempt
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to do any of the foregoing shall be void. The provisions of this Agreement
shall be binding upon and inure to the benefit of Employee and his heirs and
personal representatives and shall be binding upon and inure to the benefit of
the Company and its successors and those who are its assigns under Section 11.
21. No Third Party Beneficiaries
----------------------------
This Agreement does not create, and shall not be construed as creating, any
rights enforceable by any Person not a party to this Agreement (except as
provided in Section 20).
22. Headings
--------
The headings in this Agreement are solely for the convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
23. Remedy.
------
In the event that any term or provision of this Agreement shall be deemed
by a court of competent jurisdiction, arbitrator or mediator, as the case may
be, to be overly broad in scope, duration or area of applicability, the court,
arbitrator or mediator, as the case may be, considering the same shall have the
power and hereby is authorized and directed to modify such term or provision to
limit such scope, duration or area, or all of them, so that such term or
provision is no longer overly broad and to enforce the same as so limited.
Subject to the foregoing sentence, in the event that any provision of this
Agreement shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall attach only to such provision and shall not
affect or render invalid or unenforceable any other provision of this Agreement.
24. Counterparts; Governing Law
---------------------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
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<PAGE>
and the same instrument. It shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to principles of
conflicts of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
CAMBRIDGE HEART, INC.
By: /s/ M.R. Krauss
----------------------------
MARLENE R. KRAUSS, Chairman
/s/ J.M. Arnold
----------------------------
JEFFREY M. ARNOLD
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<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of April 27, 1993 between CAMBRIDGE HEART,
INC., a Delaware corporation with offices c/o KBL Healthcare, Inc., 645 Madison
Avenue, New York, New York 10022 (the "Company"), and PAUL ALBRECHT, residing at
5 Coachmen Lane Bedford, MA 01730 ("Employee").
The Company desires to engage Employee to perform services for the Company
or, at the direction of the Company, any present or future parent, subsidiary,
or affiliate of the Company, and (subject to Section 10) any successor or assign
of any of them (the "Corporations"), and Employee desires to perform such
services, on the terms and conditions hereinafter set forth.
1. Term
The Company agrees to employ Employee, and Employee agrees to serve, on the
terms and conditions of this Agreement, for a period commencing on June 15, 1993
and ending five years from such date, or such shorter period as may be provided
for herein. The period during which Employee is employed hereunder is hereafter
referred to as the "Employment Period."
2. Duties and Services
(a) During the Employment Period, Employee shall be employed as Vice
President - Engineering of the Company and shall also perform services in a
responsible executive or managerial capacity when and as requested by the
Company. In performance of his duties, Employee shall be subject to the
direction of the Board of Directors of the Company. Employee agrees to his
employment as described in this Section 2 and agrees to devote his full business
time and attention, except as provided for in paragraph (b) below, to the
performance of his duties under this Agreement, excepting disabilities, illness,
and vacation time as provided by Sections 3 and 4. In performing his duties
<PAGE>
hereunder, Employee shall be available for reasonable travel as the needs of the
business require.
(b) The Company acknowledges that the Employee is currently employed by
Cerner Corporation ("Cerner") and that the Employee desires to facilitate an
orderly transition from Cerner to the Company; therefore, the Company and the
Employee have agreed that, notwithstanding anything to the contrary contained
herein, the Employee shall be permitted to continue to provide services to
Cerner through September 15, 1993 subject to the following limitations on the
amount of the Employee's business time that may be spent providing services to
Cerner: (i) June 15 through July 15, 1993, not more than 2.5 days per week; and
(ii) thereafter for two months, not more than .5 days per week. Throughout such
transition period, the Employee's primary responsibilities shall be those owing
to the Company, as set forth in this Agreement; accordingly, the Employee shall
use his best efforts to schedule his time spent providing services to Cerner at
times which are convenient to the Company.
(c) Subject to any business travel reasonably required in connection with
the performance by the Employee of his obligations hereunder, the Employee will
perform his services hereunder in the Boston metropolitan area, for a period of
not less than two years from the commencement of the Employment Period. In the
event that the Company requires that the Employee relocate outside of the Boston
metropolitan area prior to the end of the second year of the Employment Period,
the Employee shall have the right to refuse to so relocate, and in such event
this Agreement shall be deemed terminated pursuant to Section 9(c) below, and
the Employee shall receive the severance benefits described in Section 9(c)
below. In the event that the Company requests that the Employee relocate
outside of the Boston metropolitan after the
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<PAGE>
end of the second year of the Employment Period, the Employee shall be obligated
to so relocate; provided, that the Company agrees to reimburse the Employee for
his reasonable out of pocket expenses incurred in connection with such
relocation, including without limitation (i) up to a 6% real estate commission
on the sale of his home, (ii) normal closing costs incurred in selling his home,
(iii) normal closing costs incurred in purchasing a new home, and (iv) the cost
of moving his household goods.
3. Compensation; Benefits
(a) As compensation for his services hereunder, the Company shall pay
Employee, during the Employment Period, a salary payable monthly at the rate of
$8,333 per month ("Salary") with bonuses of $20,000 and $25,000 at the end of
calendar years 1993 and 1994, respectively, which amount shall be paid on or
before December 31 of each year. For each calendar year during the remainder of
the Employment Period, Employee shall be entitled to receive an annual
performance-based bonus in accordance with an executive bonus plan approved by
the Board of Directors in the amount of $30,000; such bonus to be earned as of
December 31 of each year and paid prior to January 31 of the following year.
For all bonuses payable hereunder, in the event that the Employee shall not be
employed by the Company throughout an entire calendar year during which a bonus
is to be paid, the Employee shall be entitled to receive only a pro rata share
of such annual bonuses based upon the number of weeks during such calendar year
that the Employee was employed. The Company shall review the Employee's
performance and the performance of the Company annually, and the Employee's
Salary may be increased, at the discretion of the Company, on the basis of such
review. Employee's Salary and bonus will be personally guaranteed for one year
by Marlene R. Krauss, M.D. until such time as at least $2,000,000 is raised for
the Company.
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<PAGE>
(b) Upon the commencement of the Employment Period, the Employee will be
granted options to purchase an aggregate of 450,000 shares of Common Stock of
the Company, par value $.001 per share ("Common Stock"), at a price of $.001 per
share, which options shall vest and become exercisable by the Employee at the
rate of 90,000 shares per year over a period of five years, with options to
purchase the first such 90,000 shares becoming exercisable one year from the
date of grant of such options (such 450,000 options shall be "non-qualified"
options under the Internal Revenue Code of 1986, as amended).
All options to be granted to the Employee hereunder shall (i) expire ten
years from the date of grant (in the event of the termination of Employee's
employment with the Company, the portions of such options that are then vested
and exercisable (including any portion that is accelerated pursuant to the
following clause (ii)) shall remain vested and exercisable until ten years after
the date of grant; (ii) contain a provision whereby, in the event of any
termination of the Employment Period pursuant to Section 9(c), hereof the
vesting, if dependent solely on the passage of time, shall be accelerated by
ninety (90) days; (iii) contain a provision permitting the option exercise price
to be paid by the Employee using any of the payment methods specified in Section
6(b) of the Company's 1993 Stock Option Plan; and (iv) be granted under the
Company's 1993 Stock Option Plan and, subject to the terms of this Agreement,
shall be subject to the general terms and conditions of that plan.
The Company represents and warrants to Employee that (i) the 450,000 shares
(the "Shares") of Common Stock issuable to Employee upon the exercise of the
options granted hereunder represent 7.5% of the Company's outstanding shares of
Common Stock on a fully-diluted basis on the date hereof (before the issuance of
options to the Company's Chief Executive Officer), and (ii) the Shares are not
and will not be subject to any restrictions on transfer other than as set
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<PAGE>
forth in this Agreement or arising under applicable federal and state securities
laws.
(c) In addition, Employee shall receive payments of $5,000 each upon the
Company's development of commercial prototypes of the following devices for
submission to the FDA:
(i) Assessment of Electrical Stability;
(ii) Continuous Cardiac Output Monitor; and
(iii) Cardiac Electrical Imaging.
(d) Employee shall be entitled to participate in all benefit plans and
programs that the Company establishes and makes available from time to time to
its senior executive employees, to the extent that Employee's salary, age,
health and other qualifications make him eligible to participate, including
without limitation, any and all bonus or other compensatory plans established
generally for its senior executive employees. Employee acknowledges that the
Company shall be entitled, in its sole and absolute discretion, to change or
modify the employee benefit plans and programs that it offers from time to time,
so long as at all times the Company provides Employee with group health and
hospitalization insurance.
(e) Employee shall be entitled to reasonable vacations in accordance with
the then regular procedures of the Company governing executives; provided,
however, that the Employee shall be entitled to not less than three weeks
vacation during each year of the Employment Period. The Employee hereby agrees
that, if so requested by the Company, the Employee shall limit the amount of
vacation time taken by the Employee during the first two years of the Employment
Period to two weeks in the first year and three weeks in the second year;
provided, that in any such case the Employee shall be entitled to accrue
-5-
<PAGE>
such unused vacation time, and such accrued vacation time may be taken at
anytime after the first two years of the Employment Period.
4. Expenses
Employee shall be entitled to reimbursement for reasonable travel and other
out-of-pocket expenses necessarily incurred in the performance of his duties
hereunder, upon submission and approval of written statements and bills in
accordance with the then regular procedures of the Company.
5. Representations and Warranties of Employee
Employee represents and warrants to the Company that his performance of the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement or obligation to which the Employee is a party or by which
he is bound.
6. Non-Competition; Non-Solicitation
In view of the unique and valuable services it is expected Employee will
render to the Company, Employee's knowledge of the customers, trade secrets, and
other proprietary information relating to the business of the Company and its
customers and suppliers and similar knowledge regarding the Company it is
expected Employee will obtain, and in consideration of the compensation to be
received hereunder, Employee agrees that he will not, during the period he is
employed by the Company under this Agreement or otherwise, and for a period of
eighteen months after he ceases to be employed by the Company under this
Agreement or otherwise, compete with, intend to compete with, or be engaged in
the same business as, or Participate In (as defined below), any other business
or organization (which shall not include a university, hospital, or other non-
profit organization) which during the period he is employed by the Company under
this Agreement or otherwise, and for such eighteen-month period thereafter
competes with, intends to compete with, or is engaged in the same
-6-
<PAGE>
business as the Company, with respect to (i) any product or service in the
cardiovascular field sold or actively being developed by the Company up to the
time of such cessation in any geographic area in which, at the time of such
cessation, such product or service is sold or activity engaged in or (ii) any
product or service in any other field sold or actively being developed by the
Company at the time of such cessation with respect to which Employee acquires
"confidential information" (as hereinafter defined) and provides direct
assistance during the course of his employment hereunder or otherwise with the
Company; provided, however, that the provisions of this Section 6 will not be
deemed breached merely because (x) Employee is employed by a business or
organization which competes with or is engaged in the same business as the
Company, with respect to any product or service, if (A) such other business or
organization derives less than 25% of its revenues from such competitive
activities and (B) the Employee is employed by such other business or
organization in a capacity which does not result in his direct or indirect
involvement with such competitive activities; or (y) Employee owns less than 1%
of the outstanding common stock of a corporation, if, at the time of its
acquisition by Employee, such stock is listed on a national securities exchange,
is reported on NASDAQ, or is regularly traded in the over-the-counter market by
a member of a national securities exchange; and provided, further, that the
provisions of this Section 6 will not be breached if Employee's employment with
the Company is terminated because the Company becomes a subject of a proceeding
under the Federal Bankruptcy Code, and, subsequent to such termination, Employee
competes with, engages in the same business as, or Participates In any other
business which competes with or is engaged in the same business as the Company.
The term "Participate In" shall mean: "directly or indirectly, for his own
benefit or for, with, or through any other person (including Employee's
-7-
<PAGE>
immediate family), firm, or corporation, own, manage, operate, control, loan
money to, or participate in the ownership, management, operation, or control of,
or be connected as a director, officer, employee, partner, consultant, agent,
independent contractor, or otherwise with, or acquiesce in the use of his name
in."
Employee agrees that during the period he is employed by the Company under
this Agreement or otherwise, and for an eighteen-month period after he ceases to
be so employed by the Company, he will not directly or indirectly (i) reveal the
name of, solicit or interfere with, or endeavor to entice away from the Company
any of its suppliers, customers, or employees or (ii) employ any person who was
an employee of the Company within a period of one year after such person leaves
the employ of the Company.
Since a breach of the provisions of this Section 6 could not adequately be
compensated by money damages, the Company shall be entitled, in addition to any
other right and remedy available to it, to seek an injunction restraining such
breach or a threatened breach. In either case no bond or other security shall
be required in connection therewith. Employee agrees that the provisions of
this Section 6 are necessary and reasonable to protect the Company in the
conduct of its business. If any restriction contained in this Section 6 shall
be deemed to be invalid, illegal, or unenforceable by reason of the extent,
duration, or geographical scope thereof, or otherwise, then the court making
such determination shall have the right to reduce such extent, duration,
geographical scope, or other provisions hereof, and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby.
7. Patents, etc.
Any interest in patents, patent applications, inventions, technological
innovations, copyrights, copyrightable works, developments,
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<PAGE>
discoveries, designs, and processes which Employee during the period he is
employed by the Company under this Agreement or otherwise and for one year
thereafter may acquire rights to, conceive of, or develop and which (i) relate
to the cardiovascular field or any other field with respect to which the
Employee has provided direct assistance to the Company in connection with any
product or service sold or actively engaged by the Company in such field, or
(ii) are developed utilizing the time, material, facilities, or information of
the Company ("Such Inventions") shall belong to the Company; as soon as Employee
owns, conceives of, or develops any Such Invention, he agrees immediately to
communicate such fact in writing to the Secretary of the Company, and without
further compensation, but at the Company's expense (except as noted in clause
(a) of this Section 7), forthwith upon request of the Company, Employee shall
execute all such assignments and other documents (including applications for
patents, copyrights, trademarks, and assignments thereof) and take all such
other action as the Company may reasonably request in order (a) to vest in the
Company all Employee's right, title, and interest in and to Such Inventions,
free and clear of liens, mortgages, security interests, pledges, charges, and
encumbrances arising from the acts of Employee ("Liens") (Employee to take such
action, at his expense, as is necessary to remove all such Liens) and (b), if
patentable or copyrightable, to obtain patents or copyrights (including
extensions and renewals) therefor in any and all countries in such name as the
Company shall determine.
8. Confidential Information
All confidential information which Employee has obtained prior to the
execution of this Agreement from the Company, may obtain during or after the
Employment Period, or may create prior to the end of the period he is employed
by the Company under this Agreement or otherwise relating to the business of the
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<PAGE>
Company or of any customer or supplier of the Company shall not be published,
disclosed, or made accessible or by him to any other person, firm, or
corporation either during or after the termination of his employment or used by
him except during the Employment Period in the business and for the benefit of
the Company, in each case without prior written permission of the Company.
Employee shall return all physical evidence of such confidential information to
the Company prior to or at the termination of his employment. As used in this
Section 8, "confidential information" shall mean any information except that
information which is generally known by the Company's principal competitors or
which is generally available to the public, or later becomes public without a
breach by Employee of this Section 8, or is already known by the Employee and
has not been obtained or learned by the Employee from the Company or from a
third party as a result of a breach of any obligation of confidentiality owed by
such third party to the Company.
9. Termination
(a) Notwithstanding anything to the contrary herein contained, if on or
after the Commencement Date and prior to the expiration of the Employment
Period, either (i) Employee shall be physically or mentally incapacitated or
disabled or otherwise unable fully to discharge his duties hereunder for a
period of six months, as determined by a physician selected by the Board of
Directors from a list of physicians practicing medicine in the geographic area
of the Company's principal executive offices provided by the local chapter of
the American Medical Association, or a similar professional organization, (ii)
Employee shall be convicted of a crime of moral turpitude or a felony, (iii) the
Company's Board of Directors shall determine in good faith, after notice to
Employee and an opportunity for the Employee to appear before and be heard by
the Board, that Employee has engaged in willful misconduct or gross negligence
-10-
<PAGE>
in connection with the performance of his duties hereunder, (iv) Employee, if a
member of the Company's Board of Directors, shall breach any fiduciary duty to
the Company, or (v) Employee shall breach any material term of this Agreement
and fail to correct such breach within 30 days after notice by the Company to
Employee of his commission of the same, then, and in each such case, the Company
shall have the right to give written notice of termination of Employee's
services hereunder as of a date (not earlier than 30 days from such notice) to
be specified in such notice and the Employment Period shall terminate on the
date so specified.
(b) In the event that Employee shall die prior to the end of the Employment
Period, then the Employment Period shall terminate on the date of Employee's
death, whereupon Employee or his estate, as the case may be, shall be entitled
to receive only his compensation at the rate then provided pursuant to Section
3(a) to the date on which termination shall take effect.
(c) Notwithstanding anything to the contrary herein contained, on or after
any date falling five months from the Commencement Date but prior to the
expiration of the Employment Period, the Company shall have the right to give
written notice of the termination of Employee's services hereunder as of a date
(not earlier than 30 days from such notice) to be specified in such notice and
the Employment Period shall terminate on the date so specified. Upon any such
termination the Company shall be obligated to continue to pay the Employee his
Salary, at the rate in effect immediately prior to such termination, for a
period of six months.
Nothing contained in this Section 9 shall be deemed to limit any other
right the Company may have to terminate Employee's employment hereunder upon any
ground permitted by law.
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<PAGE>
(d) Notwithstanding anything to the contrary herein contained, the Employee
shall have the right to give written notice of the termination of the Employee's
services hereunder as of a date (not earlier than 60 days from such notice) to
be specified in such notice and the Employment Period shall terminate on the
date so specified.
10. Merger, etc.
In the event of a future disposition of (or including) the properties and
business of the Company, substantially as an entirety, by merger, consolidation,
sale of assets or otherwise, then the Company may elect:
(a) to assign this Agreement and all of its rights and obligations
hereunder to the acquiring or surviving entity; provided that such entity shall
assume in writing all of the obligations of the Company hereunder; and provided,
further, that the Company (in the event and so long as it remains in existence)
shall remain liable for the performance of its obligations hereunder in the
event of a breach by the acquiring entity of this Agreement; or
(b) in addition to its other rights of termination, the Company shall have
the right to terminate this Agreement upon at least 30 days' written notice.
Upon any such termination, the company shall be obligated to continue to pay the
Employee his Salary, at the rate in effect immediately prior to such
termination, for a period of six months.
11. Survival
The covenants, agreements, representations and warranties of the Employee
contained in or made pursuant to this Agreement shall survive Employee's
termination of employment as provided herein.
12. Entire Agreement; Modification
This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements
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<PAGE>
between them concerning such subject matter, and may be modified only by a
written instrument duly executed by each party.
13. Notices
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or delivered against receipt to the party to whom it is to be
given at the address of such party set forth in the preamble to this Agreement
(or to such other address as the party shall have furnished in writing in
accordance with the provisions of this Section 13). Notice to the estate of
Employee shall be sufficient if addressed to Employee as provided in this
Section 13. Any notice or other communication given by certified mail shall be
deemed given three days after the time of certification thereof, except for a
notice changing a party's address which shall be deemed given at the time of
receipt thereof.
14. Waiver
Any waiver by either party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions shall not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing, signed by the
party giving such waiver.
15. Binding Effect
Employee's rights and obligations under this Agreement shall not be
transferable by assignment or otherwise, such rights shall not be subject to
commutation, encumbrance, or the claims of Employee's creditors, and any attempt
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<PAGE>
to do any of the foregoing shall be void. The provisions of this Agreement
shall be binding upon and inure to the benefit of Employee and his heirs and
personal representatives and shall be binding upon and inure to the benefit of
the Company and its successors and those who are its assigns under Section 10.
16. No Third Party Beneficiaries
This Agreement does not create, and shall not be construed as creating, any
rights enforceable by any Person not a party to this Agreement (except as
provided in Section 15).
17. Headings
The headings in this Agreement are solely for the convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
18. Remedy
In the event that any term or provision of this Agreement shall be deemed
by a court of competent jurisdiction, arbitrator or mediator, as the case may
be, to be overly broad in scope, duration or area of applicability, the court,
arbitrator or mediator, as the case may be, considering the same shall have the
power and hereby is authorized and directed to modify such term or provision to
limit such scope, duration or area, or all of them, so that such term or
provision is no longer overly broad and to enforce the same as so limited.
Subject to the foregoing sentence, in the event that any provision of this
Agreement shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall attach only to such provision and shall not
affect or render invalid or unenforceable any other provision of this Agreement.
19. Counterparts; Governing Law
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute
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<PAGE>
one and the same instrument. It shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to principles of
conflicts of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
CAMBRIDGE HEART, INC.
By: /s/ M.R. Krauss
------------------------------
Marlene R. Krauss, MD
/s/ P. Albrecht
------------------------------
Paul Albrecht
5 Coachmen Lane
Bedford, MA 01730
The undersigned hereby guarantees the obligation of the Company to pay the
Employee's Salary and bonus until such time as at least $2,000,000 is raised for
the Company, as provided in Section 3(b) of the foregoing Agreement.
/s/ M.R. Krauss
------------------------------
Marlene R. Krauss, M.D.
4/27/93
------------------------------
Date
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<PAGE>
EXHIBIT 10.9
STANDARD COMMERCIAL LEASE
1. Identification
The Lease made as of May , 1995 by and between R. W. CONNELLY (the
---
"Landlord"), having an address at 57 Bedford Street, Suite 100, Lexington,
Massachusetts 02173, and CAMBRIDGE HEART, INC., a Massachusetts corporation
(the "Tenant"), having an address at 99 South Bedford Street, Suite 204,
Burlington, Massachusetts 01803.
2. Premises
Tenant, which expression shall include its successors, executors,
administrators, and assigns where the context so admits, and hereby leases
the following described premises: Approximately 11,000 square feet of floor
area on the first floor situated in a certain building known as One Oak Park
Drive, in the Town of Bedford, Middlesex County, Massachusetts, as more
particularly described in Exhibit A, together with the right to use Common,
with others entitled thereto, the hallways and stairways necessary for access
to said leased premises and lavatories nearest thereto.
3. Term
The term of this lease shall commence on the later of (i) June 1, 1995, or
(ii) the date the Landlord's Work is Substantially Complete (the "Term
Commencement Date") and shall expire, unless earlier extended or terminated
in accordance with the terms hereof, at midnight on the last day of the
sixtieth (60th) full calendar month following the Term Commencement Date;
unless earlier terminated under an Early Termination Option which allows the
Tenant a one-time right to terminate the Lease at the end of the fourth year
by providing no less than six (6) months prior written notice and a payment
of twenty-two thousand ($22,000) dollars with the notice.
4. Rent
The Tenant shall pay to the Landlord rent at the rate of Eighty-Eight
Thousand Dollars ($88,000) in year one and One Hundred Four Thousand Five
Hundred Dollars ($104,500) in years 2 - 5, payable in advance in monthly
installments of $7,333.33 and $8,708.33, respectively.
5. Rent Adjustment
Additional Basic Rent
The Landlord represents that the Taxes on the building for Fiscal Year 1995
are $1.25 per total rentable square foot (currently 22,000 square feet). In
the event of any increase in Taxes for any subsequent Fiscal Year exceed
$1.25 per rentable square foot,
<PAGE>
then Landlord shall notify Tenant of such increase and Tenant agrees to pay
to Landlord the amount which the Taxes exceed $1.25 per rentable square foot
for the leased premise. Such payment will be made to Landlord 30 days after
such notice.
If Common Expenses for the Period June 1, 1995 through May 31, 1996 (or each
subsequent annual period) exceeds $2.50 per rentable square foot then the
Landlord may notify Tenant and Tenant agrees to pay any such increase in
excess of $2.50 per rentable square foot. Such payment will be made to
Landlord within 30 days after such notice. The increase in operating
expenses shall not increase by more than the Consumer Price Index for All
Urban Consumers (CPI-U), Boston, Massachusetts, with the commencement month
and year being the base from $2.50 per rentable square foot.
"Common Expenses" shall mean any and all reasonable charges, costs and
expenses of every kind and nature whatever which the Landlord may from time
to time actually incur and the reasonable value, based on competitive rates,
of any materials and services which the Landlord may provide in good faith
with respect to the operation and maintenance of the Building and the
Property, including, without limitation, (i) making repairs to and
undertaking maintenance of the Building and the Property; (ii) providing
utilities, including heat, water, sewer, air conditioning and ventilation as
provided in Paragraph 7 hereof, to the Premises and to the common areas of
the Building; (iii) providing daily cleaning and rubbish removal; (iv)
providing watering, landscaping and lawn care for the Property; (v)
sanding, plowing and removal of snow and ice from the driveways, walkways and
parking areas; (vi) maintaining casualty and liability insurance with
respect to the Landlord, the Premises, the Building and the Property; and
(vii) reasonable administrative costs of the Landlord, not to exceed 5%
gross income which shall be commensurate with those normally charged for
suburban office buildings of this nature in the metropolitan Boston area.
Common Expenses shall not include capital costs, mortgage debt service,
ground rent, and legal compliance. "Taxes" shall mean any and all real
estate taxes, betterments and special assessments or amounts in lieu or in
the nature thereof which may now or hereafter be levied upon the Building or
Property.
Notwithstanding the foregoing, during the Term the Tenant shall pay on an
annual basis the Tenant's percentage only if the amount by which Common
Expenses for the Building or Property exceed two dollars and fifty cents
($2.50) per rentable square foot.
If any payment of Basic Rent or Additional Rent is not paid to the Landlord
within five days of its due date or within any applicable grace period, then
at the Landlord's option, without notice and in addition to all other
remedies hereunder, the Tenant shall pay upon demand to the Landlord as
Additional Rent interest thereon at an annual rate equal to the corporate
rate of the Bank of Boston from time to time in effect plus two (2) percent,
such interest to be computed from the date such Basic Rent or Additional Rent
was originally due through the date when paid in full.
Upon written notice from Tenant, the Landlord shall provide copies of
documentation reasonably evidencing the costs incurred by the Landlord as
Common Expenses and Taxes. The Landlord shall be obligated to provide such
written summary and documentation only if Common Expenses exceed two dollars
and fifty cents ($2.50) per
2
<PAGE>
rentable square foot and Taxes exceed one dollar and twenty-five cents
($1.25) per rentable square foot.
Common Expenses shall exclude cost of repairs and general maintenance paid by
proceeds of insurance or by Tenant or other third parties and alteration
attributable solely to tenants of the building other than Tenant. The net
amount of any abatement shall be deducted from the Real Estate taxes.
6. Security Deposit
Upon the execution of this lease, the Tenant shall pay to the Landlord the
amount of $8,479.17, which shall be held as a security for the Tenant's
performance as herein provided and refunded to the Tenant at the end of this
lease subject to the Tenant's satisfactory compliance with the conditions
hereof.
7. Utilities
The Tenant shall pay, as they become due, all bills for electricity (which
includes heat and air conditioning) that are presently separately metered.
The Landlord agrees to provide all other utility service and to furnish
reasonably hot and cold water and reasonable heat and air conditioning (as
noted above electricity for heat and air conditioning shall be paid by
Tenant) to the leased premises, the hallways and stairways, and lavatories
during normal business hours on regular business days of the heating and air
conditioning seasons of each year, to light passageways and stairways during
business hours, and to furnish such cleaning service as is customary in
similar buildings in said city or town, all subject to interruption due to
any accident, to the making of repairs, alterations, or improvements, to
labor difficulties, to trouble in obtaining fuel, electricity, service, or
supplies from the sources from which they are usually obtained for said
building, or to any cause beyond the Landlord's control.
Landlord shall have no obligation to provide utilities or equipment other
than the utilities and equipment within the premises as of the commencement
date of this lease. In the event Tenant requires additional utilities or
equipment, the installation and maintenance thereof shall be the Tenant's
sole obligation, provided that such installation shall be subject to the
written consent of the Landlord.
Tenant can choose his hours of operations for any 12-hour period and Landlord
will set the clocks.
8. Construction by Landlord
The Landlord shall complete, at the Landlord's cost and expense, except as
set forth herein, certain work in the Premise (the "Landlord's Work"). The
Premise shall be built out in accordance with the plan agreed upon during the
meeting of April 14, 1995, attached as Exhibit B.
3
<PAGE>
The Tenant shall not unreasonably withhold or delay approval of any changes
or amendment to the Landlord's work which the Landlord may from time to time
propose, provided, however, that the Tenant need not approve any such
proposed changes or amendment which materially adversely affect the value or
quality or the Tenant's anticipated use of the premises.
The Landlord shall exercise all commercially reasonable efforts to
substantially complete the Landlord's Work by May 31, 1995, such dates shall
be automatically extended for the periods of (i) any delays caused by the
Tenant's changes to the agreed upon plan, and any other delays which are the
responsibility of the Tenant (any and all such delays being referred to as
"Tenant Delays"); (ii) any delays which result from strikes, inability to
obtain materials, fire or other casualty and from any causes beyond the
commercially reasonable control of the Landlord; (iii) and any delays caused
by Tenant's failure to deliver a signed Lease by April 28, 1995.
The Landlord shall cause the Premise to be completed in a good and
workmanlike manner using first-class materials and in compliance with all
applicable laws, by-laws, ordinance, codes, rules, regulation orders and
other lawful requirements of Governmental bodies having jurisdiction.
Landlord will work diligently to complete the leased premise within 30 days
of the Lease signing.
The Tenant shall reimburse the Landlord as and when the applicable items of
work are completed and invoiced by the Landlord, (i) all net incremental
costs associated with change orders requested by the Tenant; (ii) the
incremental costs of any work requested by Tenant not set forth in the agreed
upon plan and specification; and (iii) any work exceeding the
specifications set forth in the "building standard" description except as
otherwise set forth on the plan and specification. All such work shall be
reimbursed at the Landlord's cost plus ten percent (10%) for administrative
services, overhead and general conditions.
9. Use of Leased Premises
The Tenant shall use the leased premises only for the purpose of R & D,
office and light manufacturing.
10. Compliance with Laws
The Tenant acknowledges that no trade or occupation shall be conducted in the
leased premises or use made thereof which will be unlawful, improper, noisy
or offensive, or contrary to any law of any municipal by-law or ordinance in
force in the city or town in which the premises are situated. Parties
acknowledge and agree that Tenant's use and operation of the Leased premises
for the intended use shall be deemed not to violate the provision of this
Paragraph 10. In addition, under no circumstance shall Tenant be required to
make any structural alterations to comply with legal requirements so long as
Tenant's use remains within the permitted use.
4
<PAGE>
11. Fire Insurance
The tenant shall not permit any use of the leased premises which will make
voidable any insurance on the property of which the leased premises are a
part, or on the contents of said property or which shall be contrary to any
law or regulation from time to time established by the New England Fire
Insurance Rating Association, or any similar body succeeding to it powers.
The Tenant shall on demand, except if Tenant is using space for the
permitted use, reimburse the Landlord, and all other tenants, all extra
insurance premiums caused by the Tenant's use of the premises.
12. Maintenance
A. Tenant's Obligations
The Tenant agrees to maintain the leased premises in good condition,
damage by fire and other casualty only excepted, and whenever necessary,
to replace plate glass and other glass therein, acknowledging that the
leased premises are now in good order and the glass whole. The Tenant
shall not permit the leased premises to be overloaded, damaged,
stripped, or defaced, nor suffer any waste. Under no circumstances shall
Tenant be responsible for structural repairs. The Tenant shall obtain
written permission which will not be unreasonably withheld or delayed
before erecting any sign on the premise. (Landlord would like to
coordinate signage with second floor tenant so that both tenants are
satisfied.)
B. Landlord's Obligations
The Landlord agrees to maintain the structure of the building of which
the leased premises are a part in the same condition as it is at the
commencement of the term or as it may be put in during the term of this
lease, reasonable wear and tear, damage by fire and other casualty.
13. Alterations Additions
The Tenant shall not make structural alterations or additions to the leased
premises, but may make non-structural alterations provided the Landlord
consents thereto in writing, which consent shall not be unreasonably
withheld or delayed. All such allowed alterations shall be at Tenant's
expense and shall be in quality at least equal to the present construction.
Tenant shall not permit any mechanics' liens, or similar liens, to remain
upon the leased premises for labor and material furnished to Tenant or
claimed to have been furnished to Tenant in connection with work of any
character performed or claimed to have been performed at the direction of
Tenant and shall cause any such lien to be released of record forthwith
without cost to Landlord . Any permanent alterations or improvements made by
the Tenant shall become the property of the Landlord at the termination of
occupancy as provided herein. Notwithstanding the foregoing Landlord's
consent shall not be required for minor alterations. However, Landlord may
ask that
5
<PAGE>
these alterations be removed and the premise put back to its original
condition at the end of the Term.
14. Assignment Subleasing
The Tenant shall not assign or sublet the whole or any part of the leased
premises without Landlord's prior written consent which shall not be
unreasonably withheld or delayed. No consent shall be required for licensers
and/or related parties. Notwithstanding such consent, Tenant shall remain
liable to Landlord for the payment of all rent and for the full performance
of the covenants and conditions of this lease.
15. Subordination
This lease shall be subject and subordinate to any and all mortgages, deeds
of trust and other instrument in the nature of a mortgage, now or at any
time hereafter, a lien or liens on the property of which the leased premises
are a part and the Tenant shall, when requested, promptly execute and
deliver such written instruments as shall be necessary to show the
subordination of this lease to said mortgages, deeds of trust or other such
instruments in the nature of a mortgage. Notwithstanding the foregoing,
Landlord shall be required to deliver to Tenant a non-disturbance agreement
reasonably satisfactory to Tenant from the holders of any such instrument
upon request of the Tenant.
16. Landlord's Access
The Landlord or agents of the Landlord may, at reasonable times and after
reasonable notice, enter to view the leased premises and may remove placards
and signs not approved and affixed as herein provided, and make repairs and
alterations as Landlord should elect to do and may show the leased premises
to others, and at any time within six (6) months before the expiration of
the term, may affix to any suitable part of the leased premises a notice for
letting or selling the leased premises or property of which the leased
premises are a part and keep the same so affixed without hindrance or
molestation with respect to Landlord's access hereunder Landlord shall use
its best efforts to minimize any loss of use or enjoyment of the leased
premise.
17. Indemnities
The Tenant agrees to protect, defend (with counsel reasonably approved by
the Landlord), indemnify and save the Landlord harmless from and against any
and all claims and liabilities (other than claims and liabilities arising
from the negligence or misconduct of the Landlord, his agents, contractors
and employees) arising: (i) from the conduct or management of or from any
work or thing whatsoever done in or about the Premises during the Term and
from any condition existing, or any injury to or death of persons or damage
to property occurring or resulting from an occurrence, during the Term in or
about the Premises; and (ii) from any breach or default on the part of the
Tenant in the
6
<PAGE>
performance of any covenant or agreement on the part of the Tenant to be
performed pursuant to the terms of this Lease or from any negligent act or
omission on the part of the Tenant or any of its agents, employees,
subtenants, licensees, invitees or assignees. The Tenant further agrees to
indemnify the Landlord from and against all costs, expenses (including
reasonable attorneys' fees) and other liabilities incurred in connection
with any such indemnified claim or action or proceeding brought thereon, any
and all of which, if reasonably suffered, paid or incurred by the Landlord,
the Tenant shall pay promptly upon demand to the Landlord as Additional
Rent. (Landlord to have its insurance company to waive subrogation.)
18. Tenant's Liability Insurance
The Tenant shall maintain with respect to the leased premises and the
property of which the leased premises are a part comprehensive public
liability insurance in the amount of $1,000,000 with property damage
insurance in limits of $1,000,000 in responsible companies qualified to do
business in Massachusetts and in good standing therein insuring the Landlord
as well as Tenant against injury to persons or damage to property as
provided. The Tenant shall deposit with the Landlord certificates for such
insurance at or prior to the commencement of the term, and thereafter within
thirty (30) days prior to the expiration of any such policies. All such
insurance certificates shall provide that such policies shall not be
cancelled without at least ten (10) days prior written notice to each
assured named therein.
19. Fire Casualty -- Eminent Domain
Should a substantial portion of the leased premises, or of the property of
which they are a part, be substantially damaged by fire or other casualty,
or be taken by eminent domain, the Landlord may elect to terminate this
lease. When such fire, casualty, or taking renders the leased premises
substantially unsuitable for their intended use, a just and proportionate
abatement of rent shall be made, and the Tenant may elect to terminate this
lease if:
(a) The Landlord fails to give written notice within thirty (30) days of
intention to restore leased premises, or
(b) The Landlord fails to restore the leased premises to a condition
substantially equivalent to previous conditions within ninety (90) days
of said fire, casualty or taking.
The Landlord reserves, and the Tenant grants to the Landlord , all rights
which the Tenant may have for damages or injury to the leased premises for
any taking by eminent domain, except for damage to the Tenant's fixtures,
property, or equipment.
7
<PAGE>
20. Default and Bankruptcy
In the event that:
(a) The Tenant shall default in the payment of any installment of rent or
other sum herein specified and such default shall continue for ten (10)
days after written notice thereof; or
(b) The Tenant shall default in the observance or performance of any other
of the Tenant's covenants, agreements, or obligations hereunder and
such default shall not be corrected within thirty (30) days after
written notice thereof; or
(c) The Tenant shall be declared bankrupt or insolvent according to law, or,
if any assignment shall be made of Tenant's property for the benefit
of creditors,
then the Landlord shall have the right thereafter, while such default
continues, to re-enter and take complete possession of the leased premises,
to declare the term of this lease ended, and remove the Tenant's effects,
without prejudice to any remedies which might be otherwise used for arrears
of rent or other default. The Tenant shall indemnify the Landlord against
all loss of rent and other payments which the Landlord may incur by reason
of such termination during the residue of the term. If the Tenant shall
default, after reasonable notice thereof, in the observance or performance
of any conditions or covenants on Tenant's part to be observed or performed
under or by virtue of any of the provisions in any article of this lease,
the Landlord, without being under any obligation to do so and without
thereby waiving such default, may remedy such default for the account and at
the expense of the Tenant. If the Landlord makes any expenditures or incurs
any obligations for the payment of money in connection therewith, including
but not limited to, reasonable attorney's fees in instituting, prosecuting
or defending any action or proceeding, such sums paid or obligations
insured, with interest at the rate of P + 3 per cent per annum and costs,
shall be paid to the Landlord by the Tenant as additional rent.
21. Notice
Any notice from the Landlord to the Tenant relating to the leased premises
or to the occupancy thereof, shall be deemed duly served, if left at the
leased premises addressed to the Tenant, or if mailed to the leased
premises, registered or certified mail, return receipt requested, postage
prepaid, addressed to the Tenant. Any notice from the Tenant to the
Landlord relating to the leased premises or to the occupancy thereof, shall
be deemed duly served, if mailed to the Landlord by registered or certified
mail, return receipt requested, postage prepaid, addressed to the Landlord
at such address as the Landlord may from time to time advise in writing. All
rent notices shall be paid and sent to the Landlord at 57 Bedford Street,
Suite 100, Lexington, Massachusetts 02173.
8
<PAGE>
22. Surrender
The Tenant shall at the expiration or other termination of this lease remove
all Tenant's goods and effects from the leased premises, (including, without
hereby limiting the generality of the foregoing, all signs and lettering
affixed or painted by the Tenant, either inside or outside the leased
premises). Tenant shall deliver to the Landlord the leased premises and all
keys, locks thereto, and other fixtures connected therewith and all
alterations and additions made to or upon the leased premises, damage by
fire or other casualty only excepted. In the event of the Tenant's failure
to remove any of Tenant's property from the premises, Landlord is hereby
authorized, without liability to Tenant for loss or damage thereto, and at
the sole risk of Tenant, to remove and store any of the property at
Tenant's expense, or to retain same under Landlord's control or to sell at
public or private sale, without notice any or all of the property not so
removed and to apply the net proceeds of such sales to the payment of any
sum due hereunder, or to destroy such property.
23. Brokerage
The Broker's named herein, Henry Reusch and David Pergola, warrant that they
are duly licensed as such by the Commonwealth of Massachusetts, and join in
this agreement and become a party hereto, insofar as any provisions of this
agreement expressly apply to them, and to any amendments or modifications of
such provisions to which they agree in writing.
Landlord agrees to pay the above-named Broker upon the term commencement
date a fee for professional services pursuant to Broker's attached
commission schedule.
24. Bind and Insure: Limited Liability of Landlord
All of the covenants, agreements, stipulations, provisions, conditions and
obligations herein expressed and set forth shall be considered as running
with the land and shall extend to, bind and inure to the benefit of the
Landlord and the Tenant, which terms as used in this Lease shall include
their respective successors and assigns where the context hereof so admits.
The Landlord shall not have any individual or personal liability for the
fulfillment of the covenants, agreements and obligations of the Landlord
hereunder, the Tenant's recourse and the Landlord's liability hereunder
being limited to the Property and the Building. The term "Landlord" as used
in this Lease shall refer only to the owner or owners from time to time of
the Property or the Building, it being understood that no such owner shall
have any liability hereunder for matters arising from and after the date
such owner ceases to have any interest in the Property or the Building.
Subject to the provisions of this Paragraph 24 nothing herein shall limit or
prohibit Tenant's right to specific performance, injunction or other
equitable relief as remedies in the event of a default on the part of the
Landlord hereunder.
9
<PAGE>
In no event shall the Landlord be liable to the Tenant for any special,
consequential or indirect damages suffered by the Tenant or any other person
or entity by reason of a default by the Landlord under any provisions of
this Lease.
25. Quiet Enjoyment
Landlord covenants and agrees that upon Tenant paying its rent, Tenant may
peaceably and quietly enjoy the premises hereby demised.
IN WITNESS WHEREOF, the said parties hereunto set their hands and seals this
day of , 1995.
---------- ----------------------
- ----------------------------------- -----------------------------------
Tenant Landlord
- ----------------------------------- -----------------------------------
Tenant Landlord
- ----------------------------------- -----------------------------------
Broker Broker
10
<PAGE>
Exhibit B
---------
Landlord's Work
One Oak Park Drive, Bedford, MA
First Floor Space
1) Demolition
a) Partition - approximately 130 linear feet
b) Carpeting - approximately 2100 square feet
c) Ceiling - approximately 2000 square feet
d) Lighting - remove all lighting in ceiling to be removed
2) Partitioning
Furnish and install approximately 166 linear feet of wall, floor to ceiling,
using metal studs 24" on center with one layer of 5/8" gypsum on each side,
finished and sanded.
3) Doors
a) Furnish and install approximately six (6) 3070 solid core doors including
all hardware and passage sets
b) Furnish and install approximately two (2) 6070 solid core double doors,
including all hardware and each with a lockset keyed alike
4) Flooring
a) Approximately 2100 square feet of VCT flooring to match existing
flooring.
b) Patch in where partitions have been removed as appropriate
5) Electric
a) Approximately twelve (12) duplex outlets
b) Approximately seven (7) single-pole switches
c) Approximately twenty (20) 2 x 4 parabolic lights
d) Relocate lighting and switching as necessary
11
<PAGE>
6) Sprinkler
Relocate sprinkler heads as necessary
7) HVAC
Relocate diffusers as necessary
8) Specialties
a) Two (2) 18" x 72" sidelights in reception area
b) Provide locks for shipping area (all double doors)
9) Paint the entire premises: color to be selected by Tenant
Note: All phone and data wiring to be done by Tenant.
12
<PAGE>
Exhibit 10.12
ADDENDUM AMES
"Assessing Myocardial Electrical Stability"
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
LICENSE AGREEMENT
(EXCLUSIVE)
Date: September 28, 1993
<PAGE>
(i)
Vers 11/1/91 LP/:#3 CardioDynamics lic agt.AMES9/28
Patent/Ex Date: September 28, 1993
TABLE OF CONTENTS
PAGE
----
PREAMBLE...........................................................1
--------
ARTICLES
--------
1 - DEFINITIONS....................................................1
2 - GRANT..........................................................3
3 - DUE DILIGENCE..................................................5
4 - ROYALTIES......................................................6
5 - REPORTS AND RECORDS............................................7
6 - PATENT PROSECUTION.............................................8
7 - INFRINGEMENT...................................................9
8 - PRODUCT LIABILITY.............................................10
9 - EXPORT CONTROLS...............................................11
10 - NON-USE OF NAMES.............................................11
11 - ASSIGNMENT...................................................11
12 - DISPUTE RESOLUTION...........................................12
13 - TERMINATION..................................................12
14 - PAYMENTS, NOTICES............................................13
15 - MOST FAVORED LICENSEE........................................14
16 - MISCELLANEOUS PROVISIONS.....................................14
APPENDIX AMES-A...................................................16
APPENDIX AMES-B...................................................17
APPENDIX AMES-C...................................................18
<PAGE>
-1-
This Agreement is made and entered into this day of , 199 , (the
"Effective Date") by and between MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a
corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 77 Massachusetts Avenue,
Cambridge, Massachusetts 02139, U.S.A. (hereinafter referred to as "M.I.T."),
and CAMBRIDGE HEART, INC., a corporation duly organized under the laws of
Delaware and having its principal office at 645 Madison Avenue, 14th Floor, New
York, NY 10022 (hereinafter referred to as "LICENSEE").
WITNESSETH
----------
WHEREAS, M.I.T. hereby represents that it is the owner of certain PATENT
RIGHTS and IMPROVEMENTS (as both terms are later defined herein) relating to
M.I.T. Case No. 4228, U.S. Patent 4,802,491, "Method and Apparatus for Assessing
Myocardial Electrical Stability" by Richard J. Cohen and Joseph M. Smith, and
M.I.T. Case No. 4228(2), U.S. Patent 4,732,157, "Method and Apparatus for
Quantifying Beat-to-Beat Variability in Physiologic Waveforms" by Daniel T.
Kaplan and Richard J. Cohen and has the right to grant licenses under said
PATENT RIGHTS, subject only to a royalty-free, nonexclusive license heretofore
granted to the United States Government;
WHEREAS, M.I.T. desires to have the PATENT RIGHTS utilized in the public
interest and is willing to grant a license thereunder;
WHEREAS, LICENSEE has represented to M.I.T., to induce M.I.T. to enter into
this Agreement, that LICENSEE shall commit itself to a thorough, vigorous and
diligent program of exploiting the PATENT RIGHTS so that public utilization
shall result therefrom; and
WHEREAS, LICENSEE desires to obtain a license under the PATENT RIGHTS upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
ARTICLE 1- DEFINITIONS
----------------------
For the purposes of this Agreement, the following words and phrases shall
have the following meanings:
1.1 "LICENSEE" shall include a related company of CAMBRIDGE HEART, INC.,
the voting stock of which is directly or indirectly at least fifty percent (50%)
owned or controlled by CAMBRIDGE HEART, INC.
<PAGE>
-2-
1.2 "PATENT RIGHTS" shall mean all of the following M.I.T. intellectual
property:
(a) the United States and foreign patents and/or patent applications
listed in Appendices AMES-A and AMES-B;
(b) United States and foreign patents issued from the applications of (a)
above and from divisionals and continuations of these applications;
(c) claims of U.S. and foreign continuation-in-part applications, and of
the resulting patents, which are directed to subject matter
specifically described in the disclosure of (a) above;
(d) claims of all foreign patent applications, and of the resulting
patents, which are directed to subject matter specifically described
in the United States patents and/or patent applications described in
(a), (b) or (c) above; and
(e) any reissues of patents described in (a), (b), (c) or (d) above;
(f) COPYRIGHTABLE MATERIAL and TANGIBLE PROPERTY listed in Appendix
AMES-C, including:
i) Computer Code
ii) Drawings and Circuit Diagrams
1.3 A "LICENSED PRODUCT" shall mean any product or part thereof which:
(a) is covered in whole or in part by an issued, unexpired claim or a
pending claim contained in IMPROVEMENTS or the PATENT RIGHTS in the
country in which any LICENSED PRODUCT is made, used or sold; and/or
(b) is manufactured by using a process which is covered in whole or in
part by an issued, unexpired claim or a pending claim contained in
IMPROVEMENTS or the PATENT RIGHTS in the country in which any LICENSED
PROCESS is used or in which such product or part thereof is used or
sold.
1.4 A "LICENSED PROCESS" shall mean any process which is covered in whole
or in part by an issued, unexpired claim or a pending claim contained in
IMPROVEMENTS or the PATENT RIGHTS.
1.5 "NET SALES" shall mean LICENSEE's (and its sublicensees') billings for
LICENSED PRODUCTS and LICENSED PROCESSES produced hereunder less the sum of the
following:
(a) discounts allowed in amounts customary in the trade;
(b) sales, tariff duties and/or use taxes directly imposed and with
reference to particular sales;
(c) outbound transportation prepaid or allowed; and
<PAGE>
-3-
(d) amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by LICENSEE and on
its payroll, or for cost of collections. LICENSED PRODUCTS shall be considered
"sold" when billed out or invoiced.
1.6 "TERRITORY" shall be worldwide except for those countries in which
LICENSEE was asked to pay the cost of filing, prosecuting and maintaining the
PATENT RIGHTS pursuant to Article 6.2 and elected not to pay those costs.
1.7 "FIELD OF USES" shall mean: for U.S. Patent Number 4,732,157, all; for
U.S. Patent Number 4,802,491, claims 5-14, and 16, all; for U.S. Patent Number
4,802,491, claims 1-4, and 15, all except "the analysis of cycle-to-cycle
variance in QRS complex morphology, but not ST or T-Wave morphology, as recorded
from unipolar ECG electrodes, solely for the purpose of diagnosing the presence
of coronary artery disease but specifically not for the purpose of diagnosing
susceptibility of the heart to cardiac rhythm disturbances." However, if M.I.T.
does not license claims 1-4 and 15 within six (6) months of the EFFECTIVE DATE
of this Agreement, then the FIELD OF USE for U.S. Patent Number 4,802,491 is
"all."
1.8 "PRODUCT AREA" shall mean: Assessing Myocardial Electrical Stability.
1.9 "SUBLICENSEE" shall mean a third party sublicensed by LICENSEE to
make, have made, use, lease and sell the LICENSED PRODUCT(S) and LICENSED
PROCESS(ES).
1.10 "IMPROVEMENTS" shall mean any and all modifications, refinements,
etc. dominated by the PATENT RIGHTS claims and conceived or reduced to practice
over the next three (3) years by Richard Cohen and his subordinates at M.I.T.;
provided, however, that any rights to such IMPROVEMENTS granted herein are
subject to M.I.T. contractual commitments to third party sponsors of research
under which IMPROVEMENTS are made.
1.11 LICENSE AGREEMENTS shall mean "Assessing Myocardial Electrical
Stability", "Cardiac Electrical Imaging", "Cardiovascular System
Identification", and "Pacing Technology for Prevention of Cardiac Dysrhythmias."
1.12 "EFFECTIVE DATE" shall mean the day on which all four LICENSE
AGREEMENTS were executed.
ARTICLE 2 - GRANT
----------------
2.1 M.I.T. hereby grants to LICENSEE the right and license to make, have
made, use, lease and sell the LICENSED PRODUCTS and to practice the LICENSED
PROCESSES in the TERRITORY for the FIELD OF USE to the end of the term for which
the PATENT RIGHTS are granted unless this Agreement shall be sooner terminated
according to the terms hereof.
<PAGE>
-4-
2.2 LICENSEE agrees that LICENSED PRODUCTS leased or sold in the United
States shall be manufactured substantially in the United States, as required by
35 U.S.C.204.
2.3 In order to establish a period of exclusivity for LICENSEE, M.I.T.
hereby agrees that it shall not grant any other license to make, have made, use,
lease and sell LICENSED PRODUCTS or to utilize LICENSED PROCESSES in the
TERRITORY for the FIELD OF USE during the period of time commencing with the
EFFECTIVE DATE of this Agreement and terminating with the first to occur of:
(a) the expiration of twelve (12) years after the first commercial sale of
a LICENSED PRODUCT; or
(b) the expiration of fifteen (15) years after the EFFECTIVE DATE of this
Agreement; provided, however, that if an application for premarket
approval has been submitted to the FDA for a LICENSED PRODUCT prior to
the expiration of that fifteen (15) year period, then the time spent
by that application in the FDA shall be added to the fifteen (15) year
period.
2.4 At the end of the exclusive period, the license granted hereunder
shall become nonexclusive and shall extend to the end of the term or terms for
which any PATENT RIGHTS are issued, unless sooner terminated as hereinafter
provided. The period of exclusivity may be extended upon the written consent of
M.I.T., which consent, subject to LICENSEE's diligent and successful
commercialization of the PATENT RIGHTS, shall not unreasonably be withheld.
2.5 M.I.T. reserves the right to practice under the PATENT RIGHTS and to
use and distribute to third parties for noncommercial research purposes.
2.6 LICENSEE shall have the right to enter into sublicensing agreements for
the rights, privileges and licenses granted hereunder only during the exclusive
period of this Agreement. Such sublicenses may extend past the expiration date
of the exclusive period of this Agreement, but any exclusivity of such
sublicenses shall expire upon the expiration of LICENSEE's exclusivity. Upon any
termination of this Agreement, sublicensees' rights shall also terminate,
subject to Paragraph 13.6 hereof.
2.7 LICENSEE agrees that any sublicenses granted by it shall provide that
the obligations to M.I.T. of Articles 2, 5, 7, 8, 9, 10, 12, 13, and 15 of this
Agreement shall be binding upon the sublicensee as if it were a party to this
Agreement. LICENSEE further agrees to attach copies of these Articles to
sublicense agreements.
2.8 LICENSEE agrees to forward to M.I.T. a copy of any and all sublicense
agreements promptly upon execution by the parties.
2.9 LICENSEE shall not receive from sublicensees anything of value in lieu
of cash payments in consideration for any sublicense under this Agreement,
without the express prior written permission of M.I.T. In the event LICENSEE and
M.I.T. agree on a cash equivalent value
<PAGE>
-5-
for the transaction and appropriate royalty payments to M.I.T., M.I.T. shall
provide its written consent.
2.10 The license granted hereunder shall not be construed to confer any
rights upon LICENSEE by implication, estoppel or otherwise as to any technology
not specifically set forth in Appendices AMES-A, AMES-B, AMES-C hereof.
ARTICLE 3- DUE DILIGENCE
------------------------
3.1 LICENSEE either directly or through its SUBLICENSEES shall use its
best efforts to bring one or more LICENSED PRODUCTS or LICENSED PROCESSES to
market through an ongoing, thorough, vigorous and diligent program for
exploitation of the PATENT RIGHTS and to continue vigorous, ongoing, active,
diligent marketing efforts for one or more LICENSED PRODUCTS or LICENSED
PROCESSES throughout the life of this Agreement. Such efforts shall include, but
shall not be limited to, conducting clinical trials and evaluations necessary to
obtain premarket FDA approval.
3.2 In addition, LICENSEE shall adhere to the following milestones:
(a) LICENSEE shall deliver to M.I.T. on or before three (3) month after
the EFFECTIVE DATE a business plan showing the amount of money, number
and kind of personnel and time budgeted and planned for each phase of
development of the LICENSED PRODUCTS and LICENSED PROCESSES in the
PRODUCT AREA and shall provide similar reports to M.I.T. on or before
December 31 of each year.
(b) LICENSEE shall raise and hold a minimum of Two Million Dollars
($2,000,000) aggregate in investment capital on or before the
EFFECTIVE DATE.
(c) LICENSEE shall have raised a total of Three Million Dollars
($3,000,000) cumulative in investment capital on or before one year
after the EFFECTIVE DATE.
(d) LICENSEE and/or SUBLICENSEE shall have developed a working commercial
prototype of a LICENSED PRODUCT and, if needed for commercial sale,
shall have filed an application for premarket FDA approval before four
(4) years after the EFFECTIVE DATE of this License Agreement.
3.3 LICENSEE and/or SUBLICENSEE shall make commercial sales of LICENSED
PROCESSES at least according to the following schedule:
1998 $50,000;
1999 $100,000;
2000 and each year thereafter $500,000.
3.4 LICENSEE's failure to perform in accordance with Paragraphs 3.1, 3.2
and 3.3 above shall be grounds for M.I.T. to terminate this Agreement pursuant
to Paragraph 13.3 hereof.
<PAGE>
-6-
3.5 If LICENSEE has diligently been pursuing the FDA approval required to
sell LICENSED PRODUCTS or products utilizing LICENSED PROCESSES on the
commercial market, and can demonstrate such diligence to M.I.T. by means of
written documents, then LICENSEE may request a reasonable revision to the sales
milestones in section 3.3, which revision shall not unreasonably be withheld.
ARTICLE 4-ROYALTIES
-------------------
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay royalties to M.I.T. in the manner hereinafter provided to the end of
the term of the PATENT RIGHTS or until this Agreement shall be terminated:
(a) License Issue Fee equal to the non-reimbursed sum spent by M.I.T.
prior to the OPTION PERIOD to file, prosecute, and maintain the
PATENT RIGHTS listed in Appendices AMES-A and AMES-B plus Nine
Thousand Three Hundred Seventy-Five Dollars ($9,375), such Issue Fee
payable according to the following schedule:
(i) One-third (1/3) of the non-reimbursed sum plus Six Thousand Two
Hundred Fifty Dollars ($6,250) is due upon the execution of this
Agreement;
(ii) One-third (1/3) of the non-reimbursed sum plus Three Thousand
One Hundred Twenty-Five Dollars ($3,125) is due one (1) year
after the EFFECTIVE DATE of this Agreement;
(iii) One-third (1/3) of the non-reimbursed sum is due two (2) years
after the EFFECTIVE DATE of this Agreement;
(b) For LICENSED PRODUCTS and LICENSED PROCESSES which do not contain a
substantial technical contribution, improvement, or change developed
by LICENSEE, Running Royalties in an amount equal to Two Percent (2%)
of the NET SALES of the LICENSED PRODUCTS leased or sold by LICENSEE
and/or its SUBLICENSEE(S).
(c) For LICENSED PRODUCTS and LICENSED PROCESSES containing a substantial
technical contribution, improvement, or change developed by LICENSEE,
Running Royalties in an amount equal to One and One-Half Percent
(1.5%) of the NET SALES of the LICENSED PRODUCTS leased or sold by
SUBLICENSEE(S), or Twelve Percent (12%) of gross revenue received by
LICENSEE from SUBLICENSEE(S), whichever of the two above referenced
means of calculating sublicensing revenue yields a smaller number.
(d) License Maintenance Fees of Five Thousand Dollars ($5,000) per year
payable on January 1, 1995, January 1, 1996, January 1, 1997, January
1, 1998, and January 1, 1999; provided, however, that the License
Maintenance Fee and sublicense royalties subsequently due under
subparagraph 4.1(d) for each said year, if any, shall be creditable
against Running Royalties for said year.
(e) License Maintenance Fees of Ten Thousand Dollars ($10,000) per year
payable on January 1, 2000 and on January 1 of each subsequent year
thereafter during the
<PAGE>
-7-
exclusive period of this Agreement; provided, however, that the
License Maintenance Fee and sublicense royalties subsequently due
under subparagraph 4.1(d) for each said year, if any, shall be
creditable against Running Royalties for said year. No License
Maintenance Fees are due during the non-exclusive period of this
License Agreement.
4.2 All payments due hereunder shall be paid in full, without deduction of
taxes or other fees which may be imposed by any government and which shall be
paid by LICENSEE. if Royalties were paid on billings that were subsequently
uncollected, such overpaid Royalties will be deducted from those due in
subsequent periods.
4.3 No multiple royalties shall be payable because any LICENSED PRODUCT,
its manufacture, use, lease or sale are or shall be covered by more than one
PATENT RIGHTS patent application or PATENT RIGHTS patent licensed under this
Agreement. If a given product is covered by more than one LICENSE AGREEMENT,
then the total royalty paid to M.I.T. on such product shall not exceed the
maximum royalty applicable under any single LICENSE AGREEMENT.
4.4 Royalty payments shall be paid in United States dollars in Cambridge,
Massachusetts, or at such other place as M.I.T. may reasonably designate
consistent with the laws and regulations controlling in any foreign country. If
any currency conversion shall be required in connection with the payment of
royalties hereunder, such conversion shall be made by using the exchange rate
prevailing at the Chase Manhattan Bank (N.A.) on the last business day of the
calendar quarterly reporting period to which such royalty payments relate.
ARTICLE 5 - REPORTS AND RECORDS
-------------------------------
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amounts payable to M.I.T. hereunder. Said books of account shall be kept at
LICENSEE's principal place of business or the principal place of business of the
appropriate division of LICENSEE to which this Agreement relates. Said books and
the supporting data shall be open at all reasonable times for five (5) years
following the end of the calendar year to which they pertain, to the inspection
of M.I.T. or its agents for the purpose of verifying LICENSEE's royalty
statement or compliance in other respects with this Agreement. Should such
inspection lead to the discovery of a greater than ten percent (10%) discrepancy
in reporting, LICENSEE agrees to pay half the cost of such inspection.
5.2 LICENSEE, within sixty (60) days after December 31, of each year,
shall deliver to M.I.T. true and accurate reports, giving such particulars of
the business conducted by LICENSEE and its sublicensees during the preceding
year under this Agreement as shall be pertinent to a royalty accounting
hereunder. These shall include at least the following:
<PAGE>
-8-
(a) number of LICENSED PRODUCTS manufactured and sold by LICENSEE and all
sublicensees;
(b) total billings for LICENSED PRODUCTS sold by LICENSEE and all
sublicensees;
(c) accounting for all LICENSED PROCESSES used or sold by LICENSEE and all
sublicensees;
(d) deductions applicable as provided in Paragraph 1.5;
(e) total royalties due; and
(f) names and addresses of all sublicensees of LICENSEE.
5.3 With each such report submitted, LICENSEE shall pay to M.I.T. the
royalties due and payable under this Agreement. If no royalties shall be due,
LICENSEE shall so report.
5.4 On or before the ninetieth (90th) day following the close of
LICENSEE's fiscal year, LICENSEE shall provide M.I.T. with LICENSEE's certified
financial statements for the preceding fiscal year including, at a minimum, a
Balance Sheet and an Operating Statement.
5.5 The royalty payments set forth in this Agreement and amounts due under
Article 6 shall, if overdue, bear interest until payment at a per annum rate two
percent (2%) above the prime rate in effect at the Chase Manhattan Bank (N.A.)
on the due date. The payment of such interest shall not foreclose M.I.T. from
exercising any other rights it may have as a consequence of the lateness of any
payment.
ARTICLE 6 - PATENT PROSECUTION
-----------------------------
6.1 M.I.T. shall apply for, seek prompt issuance of, and maintain during
the term of this Agreement the PATENT RIGHTS in the United States and in the
foreign countries listed in Appendix AMES-B hereto. Appendix AMES-B may be
amended by verbal agreement of both parties, such agreement to be confirmed in
writing within ten (10) days. The prosecution, filing and maintenance of all
PATENT RIGHTS patents and applications shall be the primary responsibility of
M.I.T.; provided, however, LICENSEE shall have reasonable opportunities to
advise M.I.T. and shall cooperate with M.I.T. in such prosecution, filing and
maintenance of all patents and applications included within the PATENT RIGHTS.
6.2 Payment of all fees and costs relating to the filing, prosecution, and
maintenance of the PATENT RIGHTS shall be the responsibility of LICENSEE,
whether such fees and costs were incurred before or after the date of this
Agreement. LICENSEE shall have the right to approve the attorney selected by
M.I.T. LICENSEE may elect to discontinue all or a portion of the prosecution of
the PATENT RIGHTS, provided that LICENSEE gives M.I.T. reasonable notice, so
that M.I.T. may, at its own expense, elect to preserve those rights.
<PAGE>
-9-
ARTICLE 7 - INFRINGEMENT
-----------------------
7.1 Each party shall inform the other party promptly in writing of any
alleged infringement of the PATENT RIGHTS by a third party and of any available
evidence thereof.
7.2 During the term of exclusivity of this Agreement, LICENSEE shall have
the right, but shall not be obligated, to prosecute at its own expense all
infringements of the PATENT RIGHTS and, in furtherance of such right, M.I.T.
hereby agrees that LICENSEE may include M.I.T. as a party plaintiff in any such
suit, without expense to M.I.T.. The total cost of any such infringement action
commenced or defended solely by LICENSEE shall be borne by LICENSEE and LICENSEE
shall keep any recovery or damages for past infringement derived therefrom.
7.3 If within six (6) months after having been notified of any alleged
infringement, LICENSEE shall have been unsuccessful in persuading the alleged
infringer to desist and shall not have brought and shall not be diligently
prosecuting an infringement action, or if LICENSEE shall notify M.I.T. at any
time prior thereto of its intention not to bring suit against any alleged
infringer then, and in those events only, M.I.T. shall have the right, but shall
not be obligated, to prosecute at its own expense any infringement of the PATENT
RIGHTS and M.I.T. may, for such purposes, use the name of LICENSEE as party
plaintiff. No settlement, consent judgment or other voluntary final disposition
of the suit may be entered into without the consent of M.I.T. and LICENSEE,
which consent shall not unreasonably be withheld.
7.4 In the event that LICENSEE shall undertake the enforcement and/or
defense of the PATENT RIGHTS by litigation, LICENSEE may withhold up to fifty
percent (50%) of the payments otherwise thereafter due M.I.T. under Article 4
hereunder and apply the same toward reimbursement of up to half of LICENSEE's
expenses, including reasonable attorneys' fees, in connection therewith. Any
recovery of damages by LICENSEE for each such suit shall be applied first in
satisfaction of any unreimbursed expenses and legal fees of LICENSEE relating to
such suit, and next toward reimbursement of M.I.T. for any payments under
Article 4 past due or withheld and applied pursuant to this Article 7. The
balance remaining from any such recovery shall be divided so that the fraction
of the recovery due M.I.T. is calculated by creating a fraction, the numerator
of which is the amount of royalties withheld, and the denominator of which is
the cost of litigation paid by LICENSEE, but in no event shall such sum be less
than Twelve Percent (12%) of the net recovery.
7.5 In the event that a declaratory judgment action alleging invalidity or
noninfringement of any of the PATENT RIGHTS shall be brought against LICENSEE,
M.I.T., at its option, shall have the right, within thirty (30) days after
commencement of such action, to intervene and take over the sole defense of the
action at its own expense.
<PAGE>
-10-
7.6 In any infringement suit as either party may institute to enforce the
PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at the
request and expense of the party initiating such suit, cooperate in all respects
and, to the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like.
7.7 LICENSEE, during the exclusive period of this Agreement, shall have
the sole right in accordance with the terms and conditions herein to sublicense
any alleged infringer for future use of the PATENT RIGHTS. Any upfront fees as
part of such a sublicense shall be distributed according to Article 7.4; other
royalties shall be treated per Article 4.
ARTICLE 8 - PRODUCT LIABILITY
----------------------------
8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold M.I.T., its trustees, officers, employees
and affiliates, harmless against all claims and expenses, including legal
expenses and reasonable attorneys' fees, arising out of the death of or injury
to any person or persons or out of any damage to property and against any other
claim, proceeding, demand, expense and liability of any kind whatsoever
resulting from the production, manufacture, sale, use, lease, consumption or
advertisement of the LICENSED PRODUCT(s) and/or LICENSED PROCESS(es) or arising
from any obligation of LICENSEE hereunder.
8.2 Before delivery of LICENSED PRODUCT(s) and/or LICENSED PROCESS(es),
LICENSEE shall obtain and carry in full force and effect liability insurance
which shall protect LICENSEE and M.I.T. in regard to events covered by Paragraph
8.1 above. Such insurance shall be written by a reputable insurance company
authorized to do business in the Commonwealth of Massachusetts, shall list
M.I.T. as an additional named insured thereunder and shall require thirty (30)
days written notice to be given to M.I.T. prior to any cancellation or material
change thereof. The limits of such occurrence shall not be less than One Million
Dollars ($1,000,000) per occurrence with an aggregate of Three Million Dollars
($3,000,000) for personal injury or death, and One Million Dollars ($1,000,000)
per occurrence with an aggregate of Three Million Dollars ($3,000,000) for
property damage. LICENSEE shall provide M.I.T. with Certificates of Insurance
evidencing the same.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, M.I.T. MAKES
NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING.
NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE OR
WARRANTY
<PAGE>
-11-
GIVEN BY M.I.T. THAT THE PRACTICE BY LICENSEE OF THE LICENSE GRANTED HEREUNDER
SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY.
8.4 M.I.T. hereby represents and warrants, to the best of its knowledge
and belief, to LICENSEE that the execution, delivery and performance of this
Agreement by M.I.T. does not, and will not, violate any commitments or
undertakings to which M.I.T. may be bound.
ARTICLE 9 - EXPORT CONTROLS
--------------------------
It is understood that M.I.T. is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (including the Arms Export Control
Act, as amended and the Export Administration Act of 1979), and that its
obligations hereunder are contingent on compliance with applicable United States
export laws and regulations. The transfer of certain technical data and
commodities may require a license from the cognizant agency of the United States
Government and/or written assurances by LICENSEE that LICENSEE shall not export
data or commodities to certain foreign countries without prior approval of such
agency. M.I.T. neither represents that a license shall not be required nor that,
if required, it shall be issued.
ARTICLE 10 - NON-USE OF NAMES
----------------------------
LICENSEE shall not use the names or trademarks of the Massachusetts
Institute of Technology, nor any adaptation thereof, nor the names of any of its
employees, in any advertising, promotional or sales literature without prior
written consent obtained from M.I.T., or said employee, in each case, except
that LICENSEE may state that it is licensed by M.I.T. under one or more of the
patents and/or applications comprising the PATENT RIGHTS. Such statements may
appear in the Private Placement Memoranda to be circulated by KBL Healthcare,
Inc., or in filings in compliance with securities laws. LICENSEE shall not use
the names or trademarks of the Massachusetts Institute of Technology, nor any
adaptation thereof, nor the names of any of its employees to imply that M.I.T.
endorses the LICENSED PRODUCTS sold by LICENSEE.
ARTICLE 11 - ASSIGNMENT
-----------------------
11.1 M.I.T. and LICENSEE agree that one of the main purposes of this
Agreement is for LICENSEE to add substantial technical value to the PATENT
RIGHTS.
11.2 LICENSEE may assign this agreement with M.I.T.'s written consent,
which consent shall not unreasonable be withheld, provided that LICENSEE has
fulfilled all the diligence milestones in Article 3, up to and including section
3.2: development of a working commercial prototype in the PRODUCT AREA.
Otherwise, LICENSEE shall have no right to assign, and any attempt to assign
shall be null and void.
<PAGE>
-12-
ARTICLE 12 - DISPUTE RESOLUTION
-------------------------------
12.1 For any and all claims, disputes or controversies arising out of, or
in connection with this Agreement, including any dispute relating to patent
validity or infringement, which the parties shall be unable to resolve within
sixty (60) days, the party raising such dispute shall promptly advise the other
party of such claim, dispute or controversy in a writing which describes in
reasonable detail the nature of such dispute. By not later than five (5)
business days after the recipient has received such notice of dispute, each
party shall have selected for itself a representative who shall have the
authority to bind such party, and shall additionally have advised the other
party in writing of the name and title of such representative. By not later than
ten (10) business days after the date of such notice of dispute, such
representatives shall schedule a date for a mediation hearing with the Cambridge
Dispute Settlement Center or Endispute Inc. in Cambridge, Massachusetts. If the
representatives of the parties have not been able to resolve the dispute within
fifteen (15) business days after such mediation hearing, the parties shall have
the right to pursue any other remedies legally available to resolve such dispute
in either the Courts of the Commonwealth of Massachusetts or in the United
States District Court for the District of Massachusetts, to whose jurisdiction
for such purposes M.I.T. and LICENSEE each hereby irrevocably consents and
submits.
12.2 M.I.T. is aware that Richard Cohen is a consultant to LICENSEE and is
conducting research in the field of the patent rights and that Richard Cohen is
obligated to assist LICENSEE in protecting inventions developed by him at
LICENSEE's laboratory. In the event that it is unclear whether a particular
invention in the nature of an improvement is developed by Richard Cohen in the
context of his consulting activity with LICENSEE or in the context of his
activities as a University Professor at M.I.T., M.I.T. will approach LICENSEE in
good faith to negotiate a reasonable resolution.
12.3 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
ARTICLE 13 - TERMINATION
------------------------
13.1 If LICENSEE shall cease to carry on its business, this Agreement
shall terminate upon notice by M.I.T.
13.2 Should LICENSEE fail to make any payment whatsoever due and payable
to M.I.T. hereunder, M.I.T. shall have the right to terminate this Agreement
effective on thirty (30) days' notice, unless LICENSEE shall make all such
payments to M.I.T. within said thirty (30) day period. Upon the expiration of
the thirty (30) day period, if LICENSEE shall not have made all
<PAGE>
-13-
such payments to M.I.T., the rights, privileges and license granted hereunder
shall automatically terminate.
13.3 Upon any material breach or default of this Agreement by LICENSEE,
other than those occurrences set out in Paragraphs 13.1 and 13.2 hereinabove,
which shall always take precedence in that order over any material breach or
default referred to in this Paragraph 13.3, M.I.T. shall have the right to
terminate this Agreement and the rights, privileges and license granted
hereunder effective on ninety (90) days' notice to LICENSEE. Such termination
shall become automatically effective unless LICENSEE shall have cured any such
material breach or default prior to the expiration of the ninety (90) day
period.
13.4 LICENSEE shall have the right to terminate this Agreement at any time
on six (6) months' notice to M.I.T., and upon payment of all amounts due M.I.T.
through the effective date of the termination.
13.5 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination. LICENSEE and any sublicensee
thereof may, however, after the effective date of such termination, sell all
LICENSED PRODUCTS; and complete LICENSED PRODUCTS in the process of manufacture
at the time of such termination and sell the same, provided that LICENSEE shall
pay to M.I.T. the Running Royalties thereon as required by Article 4 of this
Agreement and shall submit the reports required by Article 5 hereof on the sales
of LICENSED PRODUCTS.
13.6 Upon termination of this Agreement for any reason, any sublicensee
not then in default shall have the right to seek a license from M.I.T. M.I.T.
agrees to negotiate such licenses in good faith under reasonable terms and
conditions.
ARTICLE 14 - PAYMENTS, NOTICES
----------------------------
AND OTHER COMMUNICATIONS
------------------------
Any payment, notice or other communication pursuant to this Agreement shall
be sufficiently made or given on the date of mailing if sent to such party by
certified first class mail, postage prepaid, addressed to it at its address
below or as it shall designate by written notice given to the other party:
In the case of M.I.T.:
Director
Technology Licensing Office
Massachusetts Institute of Technology
Room E32-300
Cambridge, Massachusetts 02139
<PAGE>
-14-
In the case of LICENSEE:
President
Cambridge Heart, Inc.
645 Madison Avenue, 14th Floor
New York, NY 10022
ARTICLE 15 - MOST FAVORED LICENSEE
----------------------------------
If, during the non-exclusive period of this Agreement, M.I.T. grants a
license to another party under more favorable terms as a whole than those in
this Agreement, LICENSEE may, at no extra cost, elect a license under the more
favorable terms as a whole. M.I.T. shall notify and provide a copy to LICENSEE
within thirty (30) days of granting any license to a third party: provided,
however, that M.I.T. shall not have to identify said third party to LICENSEE.
ARTICLE 16 - MISCELLANEOUS PROVISIONS
-------------------------------------
16.1 This Agreement shall be construed, governed, interpreted and applied
in accordance with the laws of the Commonwealth of Massachusetts, U.S.A., except
that questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
16.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
16.3 The provisions of this Agreement are severable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
16.4 LICENSEE agrees to mark the LICENSED PRODUCTS sold in the United
States with all applicable United States patent numbers. All LICENSED PRODUCTS
shipped to or sold in other countries shall be marked in such a manner as to
conform with the patent laws and practice of the country of manufacture or sale.
<PAGE>
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16.5 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the day
and year set forth below.
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
By /s/ Lita Nelsen
------------------------------------------
Name LITA NELSEN
----------------------------------------
Title DIRECTOR, TECHNOLOGY LICENSING OFFICE
---------------------------------------
Date Sept 28, 1993
----------------------------------------
CAMBRIDGE HEART, INC.
By /s/ Marlene Krauss
------------------------------------------
Name MARLENE KRAUSS
----------------------------------------
Title Chair
---------------------------------------
Date 9/29/93
----------------------------------------
<PAGE>
-16-
APPENDIX AMES-A
---------------
UNITED STATES PATENT RIGHTS
M.I.T. Case No. 4228
U.S. Patent 4,802,491
"Method and Apparatus for Assessing Myocardial Electrical Stability"
By Richard J. Cohen and Joseph M. Smith
M.I.T. Case No. 4228(2)
U.S. Patent 4,732,157
"Method and Apparatus for Quantifying Beat-to-Beat Variability in Physiologic
Waveforms"
By Daniel T. Kaplan and Richard J. Cohen
<PAGE>
-17-
APPENDIX AMES-B
---------------
Foreign countries in which PATENT RIGHTS shall be filed, prosecuted and
maintained in accordance with Article 6:
M.I.T. Case No. 4228 and 4228(2):
Canada
EPC: Pending in
Germany
France
United Kingdom
<PAGE>
-18-
APPENDIX AMES-C
---------------
COPYRIGHTABLE MATERIAL AND TANGIBLE PROPERTY
Assessing Myocardial Electrical Stability Code.92
<PAGE>
Exhibit 10.13
ADDENDUM CEI
"Cardiac Electrical Imaging"
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
LICENSE AGREEMENT
(EXCLUSIVE)
Date: September 28, 1993
<PAGE>
(i)
Vers 11/1/91 LP/:to CardioDynamics lic agt.CE19/28
Patent/Ex Date: September 28, 1993
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PREAMBLE....................................1
- --------
ARTICLES
- --------
1 - DEFINITIONS.............................1
2 - GRANT...................................3
3 - DUE DILIGENCE...........................4
4 - ROYALTIES...............................5
5 - REPORTS AND RECORDS.....................7
6 - PATENT PROSECUTION......................8
7 - INFRINGEMENT............................8
8 - PRODUCT LIABILITY.......................10
9 - EXPORT CONTROLS.........................10
10 - NON-USE OF NAMES.......................11
11 - ASSIGNMENT.............................11
12 - DISPUTE RESOLUTION.....................11
13 - TERMINATION............................12
14 - PAYMENTS, NOTICES......................13
15 - MOST FAVORED LICENSEE..................13
16 - MISCELLANEOUS PROVISIONS...............14
APPENDIX CEI-A..............................15
APPENDIX CEI-B..............................16
APPENDIX CEI-C..............................17
</TABLE>
<PAGE>
-1-
This Agreement is made and entered into this day of , 199 ,
(the "Effective Date") by and between MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a
corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 77 Massachusetts Avenue,
Cambridge, Massachusetts 02139, U.S.A. (hereinafter referred to as "M.I.T."),
and CAMBRIDGE HEART, INC., a corporation duly organized under the laws of
Delaware and having its principal office at 645 Madison Avenue, 14th Floor, New
York, NY 10022 (hereinafter referred to as "LICENSEE").
WITNESSETH
----------
WHEREAS, M.I.T. hereby represents that it is the owner of certain PATENT
RIGHTS and IMPROVEMENTS (as both terms are later defined herein) relating to
M.I.T. Case No.5444, U.S. Patent 5,146,926, "Method and Apparatus for Imaging
Electrical Activity in a Biological System" by Richard J. Cohen and has the
right to grant licenses under said PATENT RIGHTS, subject only to a royalty-
free, nonexclusive license heretofore granted to the United States Government;
WHEREAS, M.I.T. desires to have the PATENT RIGHTS utilized in the public
interest and is willing to grant a license thereunder;
WHEREAS, LICENSEE has represented to M.I.T., to induce M.I.T. to enter into
this Agreement, that LICENSEE shall commit itself to a thorough, vigorous and
diligent program of exploiting the PATENT RIGHTS so that public utilization
shall result therefrom; and
WHEREAS, LICENSEE desires to obtain a license under the PATENT RIGHTS upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
----------------------
For the purposes of this Agreement, the following words and phrases shall
have the following meanings:
1.1 "LICENSEE" shall include a related company of CAMBRIDGE HEART, INC.,
the voting stock of which is directly or indirectly at least fifty percent (50%)
owned or controlled by CAMBRIDGE HEART, INC.
1.2 "PATENT RIGHTS" shall mean all of the following M.I.T. intellectual
property:
(a) the United States and foreign patents and/or patent applications
listed in Appendices CEI-A and CEI-B;
(b) United States and foreign patents issued from the applications of
(a) above and from divisionals and continuations of these
applications;
(c) claims of U.S. and foreign continuation-in-part applications,
and of the
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resulting patents, which are directed to subject matter specifically
described in the disclosure of (a) above;
(d) claims of all foreign patent applications, and of the resulting
patents, which are directed to subject matter specifically described
in the United States patents and/or patent applications described in
(a), (b) or (c) above; and
(e) any reissues of patents described in (a), (b), (c) or (d) above;
(f) COPYRIGHTABLE MATERIAL and TANGIBLE PROPERTY listed in Appendix CEI-C,
including:
i) Computer Code
ii) Drawings and Circuit Diagrams
1.3 A "LICENSED PRODUCT" shall mean any product or part thereof which:
(a) is covered in whole or in part by an issued, unexpired claim or a
pending claim contained in IMPROVEMENTS or the PATENT RIGHTS in the
country in which any LICENSED PRODUCT is made, used or sold; and/or
(b) is manufactured by using a process which is covered in whole or in
part by an issued, unexpired claim or a pending claim contained in
IMPROVEMENTS or the PATENT RIGHTS in the country in which any LICENSED
PROCESS is used or in which such product or part thereof is used or
sold.
1.4 A "LICENSED PROCESS" shall mean any process which is covered in whole
or in part by an issued, unexpired claim or a pending claim contained in
IMPROVEMENTS or the PATENT RIGHTS.
1.5 "NET SALES" shall mean LICENSEE's (and its sublicensees') billings for
LICENSED PRODUCTS and LICENSED PROCESSES produced hereunder less the sum of the
following:
(a) discounts allowed in amounts customary in the trade;
(b) sales, tariff duties and/or use taxes directly imposed and with
reference to particular sales;
(c) outbound transportation prepaid or allowed; and
(d) amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by LICENSEE and on
its payroll, or for cost of collections. LICENSED PRODUCTS shall be considered
"sold" when billed out or invoiced.
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1.6 "TERRITORY" shall be worldwide except for those countries in which
LICENSEE was asked to pay the cost of filing, prosecuting and maintaining the
PATENT RIGHTS pursuant to Article 6.2, and elected not to pay those costs.
1.7 "FIELD OF USE" shall mean all.
1.8 "PRODUCT AREA" shall mean: Cardiac Electrical Imaging.
1.9 "SUBLICENSEE" shall mean a third party sublicensed by LICENSEE to
make, have made, use, lease and sell the LICENSED PRODUCT(S) and LICENSED
PROCESS(ES).
1.10 "IMPROVEMENTS" shall mean any and all modifications, refinements,
etc. dominated by the PATENT RIGHTS claims and conceived or reduced to practice
over the next three (3) years by Richard Cohen and his subordinates at M.I.T.,
provided, however, that any rights to such IMPROVEMENTS granted herein are
subject to M.I.T. contractual commitments to third party sponsors of research
under which IMPROVEMENTS are made.
1.11 LICENSE AGREEMENTS shall mean "Assessing Myocardial Electrical
Stability", "Cardiac Electrical Imaging", "Cardiovascular System Identification"
and "Pacing Technology for Prevention of Cardiac Dysrhythmias."
1.12 "EFFECTIVE DATE" shall mean the day on which all four LICENSE
AGREEMENTS were executed.
ARTICLE 2- GRANT
----------------
2.1 M.I.T. hereby grants to LICENSEE the right and license to make, have
made, use, lease and sell the LICENSED PRODUCTS and to practice the LICENSED
PROCESSES in the TERRITORY for the FIELD OF USE to the end of the term for which
the PATENT RIGHTS are granted unless this Agreement shall be sooner terminated
according to the terms hereof.
2.2 LICENSEE agrees that LICENSED PRODUCTS leased or sold in the United
States shall be manufactured substantially in the United States, as required by
35 U.S.C.204.
2.3 In order to establish a period of exclusivity for LICENSEE, M.I.T.
hereby agrees that it shall not grant any other license to make, have made, use,
lease and sell LICENSED PRODUCTS or to utilize LICENSED PROCESSES in the
TERRITORY for the FIELD OF USE during the period of time commencing with the
Effective Date of this Agreement and terminating with the first to occur of:
(a) the expiration of twelve (12) years after the first commercial sale of
a LICENSED PRODUCT; or
(b) the expiration of fifteen (15) years after the EFFECTIVE DATE of this
Agreement; provided, however, that if an application for premarket
approval has been submitted to the FDA for a LICENSED PRODUCT prior to
the expiration of that fifteen (15) year period, then the time spent
by that application in the FDA shall be added to the fifteen (15) year
period.
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2.4 At the end of the exclusive period, the license granted hereunder
shall become nonexclusive and shall extend to the end of the term or terms for
which any PATENT RIGHTS are issued, unless sooner terminated as hereinafter
provided. The period of exclusivity may be extended upon the written consent of
M.I.T., which consent, subject to LICENSEE's diligent and successful
commercialization of the PATENT RIGHTS, shall not unreasonably be withheld.
2.5 M.I.T. reserves the right to practice under the PATENT RIGHTS and to
use and distribute to third parties for noncommercial research purposes.
2.6 LICENSEE shall have the right to enter into sublicensing agreements
for the rights, privileges and licenses granted hereunder only during the
exclusive period of this Agreement. Such sublicenses may extend past the
expiration date of the exclusive period of this Agreement, but any exclusivity
of such sublicenses shall expire upon the expiration of LICENSEE's exclusivity.
Upon any termination of this Agreement, sublicensees' rights shall also
terminate, subject to Paragraph 13.6 hereof.
2.7 LICENSEE agrees that any sublicenses granted by it shall provide that
the obligations to M.I.T. of Articles 2, 5, 7, 8, 9, 10, 12, 13, and 15 of this
Agreement shall be binding upon the sublicensee as if it were a party to this
Agreement. LICENSEE further agrees to attach copies of these Articles to
sublicense agreements.
2.8 LICENSEE agrees to forward to M.I.T. a copy of any and all sublicense
agreements promptly upon execution by the parties.
2.9 LICENSEE shall not receive from sublicensees anything of value in lieu
of cash payments in consideration for any sublicense under this Agreement,
without the express prior written permission of M.I.T. In the event LICENSEE and
M.I.T. agree on a cash equivalent value for the transaction and appropriate
royalty payments to M.I.T., M.I.T. shall provide its written consent.
2.10 The license granted hereunder shall not be construed to confer any
rights upon LICENSEE by implication, estoppel or otherwise as to any technology
not specifically set forth in Appendices CEI-A, CEI-B, CEI-C hereof.
ARTICLE 3 - DUE DILIGENCE
-------------------------
3.1 LICENSEE either directly or through its SUBLICENSEES shall use its
best efforts to bring one or more LICENSED PRODUCTS or LICENSED PROCESSES to
market through an ongoing, thorough, vigorous and diligent program for
exploitation of the PATENT RIGHTS and to continue vigorous, ongoing, active,
diligent marketing efforts for one or more LICENSED PRODUCTS or LICENSED
PROCESSES throughout the life of this Agreement. Such efforts
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shall include, but shall not be limited to, conducting clinical trials and
evaluations necessary to obtain premarket FDA approval.
3.2 In addition, LICENSEE shall adhere to the following milestones:
(a) LICENSEE shall deliver to M.I.T. on or before three (3) month after
the EFFECTIVE DATE a business plan showing the amount of money, number
and kind of personnel and time budgeted and planned for each phase of
development of the LICENSED PRODUCTS and LICENSED PROCESSES in the
PRODUCT AREA and shall provide similar reports to M.I.T. on or before
December 31 of each year.
(b) LICENSEE shall raise and hold a minimum of Two Million Dollars
($2,000,000) aggregate in investment capital on or before the
EFFECTIVE DATE.
(c) LICENSEE shall have raised a total of Three Million Dollars
($3,000,000) cumulative in investment capital on or before one year
after the EFFECTIVE DATE.
(d) LICENSEE and/or SUBLICENSEE shall have developed a working commercial
prototype of a LICENSED PRODUCT and, if needed for commercial sale,
shall have filed an application for premarket FDA approval before four
(4) years after the EFFECTIVE DATE of this License Agreement.
3.3 LICENSEE and/or SUBLICENSEE shall make commercial sales of LICENSED
PRODUCTS or LICENSED PROCESSES at least according to the following schedule:
1998 $100,000;
1999 $500,000;
2000 and each year thereafter $1,000,000.
3.4 LICENSEE's failure to perform in accordance with Paragraphs 3.1, 3.2
and 3.3 above shall be grounds for M.I.T. to terminate this Agreement pursuant
to Paragraph 13.3 hereof.
3.5 If LICENSEE has diligently been pursuing the FDA approval required to
sell LICENSED PRODUCTS or products utilizing LICENSED PROCESSES on the
commercial market, and can demonstrate such diligence to M.I.T. by means of
written documents, then LICENSEE may request a reasonable revision to the sales
milestones in section 3.3, which revision shall not unreasonably be withheld.
ARTICLE 4- ROYALTIES
--------------------
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay royalties to M.I.T. in the manner hereinafter provided to the end of
the term of the PATENT RIGHTS or until this Agreement shall be terminated:
(a) License Issue Fee equal to the non-reimbursed sum spent by M.I.T.
prior to the OPTION PERIOD to file, prosecute, and maintain the PATENT
RIGHTS listed in
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Appendices CEI-A and CEI-B plus Nine Thousand Three Hundred Seventy-
Five Dollars ($9,375), such Issue Fee payable according to the
following schedule:
(i) One-third (1/3) of the non-reimbursed sum plus Six Thousand Two
Hundred Fifty Dollars ($6,250) is due upon the execution of this
Agreement;
(ii) One-third (1/3) of the non-reimbursed sum plus Three Thousand One
Hundred Twenty-Five Dollars ($3,125) is due one (1) year after
the EFFECTIVE DATE of this Agreement;
(iii) One-third (1/3) of the non-reimbursed sum is due two (2) years
after the EFFECTIVE DATE of this Agreement;
(b) For LICENSED PRODUCTS and LICENSED PROCESSES which do not contain
substantial technical contribution, improvement, or change developed
by LICENSEE, Running Royalties in an amount equal to Two Percent (2%)
of the NET SALES of the LICENSED PRODUCTS leased or sold by LICENSEE
and/or its SUBLICENSEE(S).
(c) For LICENSED PRODUCTS and LICENSED PROCESSES containing a substantial
technical contribution, improvement, or change developed by LICENSEE,
Running Royalties in an amount equal to One and One-Half Percent
(1.5%) of the NET SALES of the LICENSED PRODUCTS leased or sold by
SUBLICENSEE(S), or Twelve Percent (12%) of gross revenue received by
LICENSEE from SUBLICENSEE(S), whichever of the two above referenced
means of calculating sublicensing revenue yields a smaller number.
(d) License Maintenance Fees of Five Thousand Dollars ($5,000) per year
payable on January 1, 1995, January 1, 1996, January 1, 1997, January
1, 1998, and January 1, 1999; provided, however, that Running
Royalties and sublicense royalties subsequently due under subparagraph
4.1(d) for each said year, if any, shall be creditable against the
License Maintenance Fee for said year.
(e) License Maintenance Fees of Ten Thousand Dollars ($10,000) per year
payable on January 1, 1999 provided, however, that the License
Maintenance Fee and sublicense royalties subsequently due under
subparagraph 4.1(d) for each said year, if any, shall be creditable
against Running Royalties for said year.
(f) License Maintenance Fees of Twenty Thousand Dollars ($20,000) per year
payable on January 1, 2000 and on January 1 of each subsequent year
thereafter; during the exclusive period of this Agreement; provided,
however, that the License Maintenance Fee and sublicense royalties
subsequently due under subparagraph 4.1(d) for each said year, if any,
shall be creditable against Running Royalties for said year. No
License Maintenance Fees shall be due during the non-exclusive period
of this License Agreement.
4.2 All payments due hereunder shall be paid in full, without deduction of
taxes or other fees which may be imposed by any government and which shall be
paid by LICENSEE. If Royalties were paid on billings that were subsequently
uncollected, such overpaid Royalties will be deducted from those due in
subsequent periods.
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4.3 No multiple royalties shall be payable because any LICENSED PRODUCT,
its manufacture, use, lease or sale are or shall be covered by more than one
PATENT RIGHTS patent application or PATENT RIGHTS patent licensed under this
Agreement. If a given product is covered by more than LICENSE AGREEMENT, then
the total royalty paid to M.I.T. on such product shall not exceed the maximum
royalty applicable to any single LICENSE AGREEMENT.
4.4 Royalty payments shall be paid in United States dollars in Cambridge,
Massachusetts, or at such other place as M.I.T. may reasonably designate
consistent with the laws and regulations controlling in any foreign country. If
any currency conversion shall be required in connection with the payment of
royalties hereunder, such conversion shall be made by using the exchange rate
prevailing at the Chase Manhattan Bank (N.A.) on the last business day of the
calendar quarterly reporting period to which such royalty payments relate.
ARTICLE 5 - REPORTS AND RECORDS
-------------------------------
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amounts payable to M.I.T. hereunder. Said books of account shall be kept at
LICENSEE's principal place of business or the principal place of business of the
appropriate division of LICENSEE to which this Agreement relates. Said books and
the supporting data shall be open at all reasonable times for five (5) years
following the end of the calendar year to which they pertain, to the inspection
of M.I.T. or its agents for the purpose of verifying LICENSEE's royalty
statement or compliance in other respects with this Agreement. Should such
inspection lead to the discovery of a greater than ten percent (10%) discrepancy
in reporting, LICENSEE agrees to pay the full cost of such inspection.
5.2 LICENSEE, within sixty (60) days after December 31, of each year,
shall deliver to M.I.T. true and accurate reports, giving such particulars of
the business conducted by LICENSEE and its sublicensees during the preceding
year under this Agreement as shall be pertinent to a royalty accounting
hereunder. These shall include at least the following:
(a) number of LICENSED PRODUCTS manufactured and sold by LICENSEE and all
sublicensees;
(b) total billings for LICENSED PRODUCTS sold by LICENSEE and all
sublicensees;
(c) accounting for all LICENSED PROCESSES used or sold by LICENSEE and all
sublicensees;
(d) deductions applicable as provided in Paragraph 1.5;
(e) total royalties due; and
(f) names and addresses of all sublicensees of LICENSEE.
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5.3 With each such report submitted, LICENSEE shall pay to M.I.T. the
royalties due and payable under this Agreement. If no royalties shall be due,
LICENSEE shall so report.
5.4 On or before the ninetieth (90th) day following the close of
LICENSEE's fiscal year, LICENSEE shall provide M.I.T. with LICENSEE's certified
financial statements for the preceding fiscal year including, at a minimum, a
Balance Sheet and an Operating Statement.
5.5 The royalty payments set forth in this Agreement and amounts due under
Article 6 shall, if overdue, bear interest until payment at a per annum rate two
percent (2%) above the prime rate in effect at the Chase Manhattan Bank (N.A.)
on the due date. The payment of such interest shall not foreclose M.I.T. from
exercising any other rights it may have as a consequence of the lateness of any
payment.
ARTICLE 6 - PATENT PROSECUTION
------------------------------
6.1 M.I.T. shall apply for, seek prompt issuance of, and maintain during
the term of this Agreement the PATENT RIGHTS in the United States and in the
foreign countries listed in Appendix CEI-B hereto. Appendix CEI-B may be amended
by verbal agreement of both parties, such agreement to be confirmed in writing
within ten (10) days. The prosecution, filing and maintenance of all PATENT
RIGHTS patents and applications shall be the primary responsibility of M.I.T.;
provided, however, LICENSEE shall have reasonable opportunities to advise M.I.T.
and shall cooperate with M.I.T. in such prosecution, filing and maintenance of
all patents and applications included within the PATENT RIGHTS.
6.2 Payment of all fees and costs relating to the filing, prosecution, and
maintenance of the PATENT RIGHTS shall be the responsibility of LICENSEE,
whether such fees and costs were incurred before or after the date of this
Agreement. LICENSEE shall have the right to approve the attorney selected by
M.I.T. LICENSEE may elect to discontinue all or a portion of the prosecution of
the PATENT RIGHTS, provided that LICENSEE gives M.I.T. reasonable notice, so
that M.I.T. may, at its own expense, elect to preserve those rights.
ARTICLE 7 - INFRINGEMENT
------------------------
7.1 Each party shall inform the other party prompfly in writing of any
alleged infringement of the PATENT RIGHTS by a third party and of any available
evidence thereof.
7.2 During the term of exclusivity of this Agreement, LICENSEE shall have
the right, but shall not be obligated, to prosecute at its own expense all
infringements of the PATENT RIGHTS and, in furtherance of such right, M.I.T.
hereby agrees that LICENSEE may include M.I.T. as a party plaintiff in any such
suit, with6ut expense to M.I.T.. The total cost of any such infringement action
commenced or defended solely by LICENSEE shall be borne by LICENSEE and LICENSEE
shall keep any recovery or damages for past infringement derived therefrom.
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7.3 If within six (6) months after having been notified of any alleged
infringement, LICENSEE shall have been unsuccessful in persuading the alleged
infringer to desist and shall not have brought and shall not be diligently
prosecuting an infringement action, or if LICENSEE shall notify M.I.T. at any
time prior thereto of its intention not to bring suit against any alleged
infringer then, and in those events only, M.I.T. shall have the right, but shall
not be obligated, to prosecute at its own expense any infringement of the PATENT
RIGHTS and M.I.T. may, for such purposes, use the name of LICENSEE as party
plaintiff. No settlement, consent judgment or other voluntary final disposition
of the suit may be entered into without the consent of M.I.T. and LICENSEE,
which consent shall not unreasonably be withheld.
7.4 In the event that LICENSEE shall undertake the enforcement and/or
defense of the PATENT RIGHTS by litigation, LICENSEE may withhold up to fifty
percent (50%) of the payments otherwise thereafter due M.I.T. under Article 4
hereunder and apply the same toward reimbursement of up to half of LICENSEE's
expenses, including reasonable attorneys' fees, in connection therewith. Any
recovery of damages by LICENSEE for each such suit shall be applied first in
satisfaction of any unreimbursed expenses and legal fees of LICENSEE relating to
such suit, and next toward reimbursement of M.I.T. for any payments under
Article 4 past due or withheld and applied pursuant to this Article 7. The
balance remaining from any such recovery shall be divided so that the fraction
of the recovery due M.I.T. is calculated by creating a fraction, the numerator
of which is the amount of royalties withheld, and the denominator of which is
the cost of litigation paid by LICENSEE, but in no event shall such sum be less
than Twelve Percent (12%) of the net recovery.
7.5 In the event that a declaratory judgment action alleging invalidity or
noninfringement of any of the PATENT RIGHTS shall be brought against LICENSEE,
M.I.T., at its option, shall have the right, within thirty (30) days after
commencement of such action, to intervene and take over the sole defense of the
action at its own expense.
7.6 In any infringement suit as either party may institute to enforce the
PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at the
request and expense of the party initiating such suit, cooperate in all respects
and, to the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like.
7.7 LICENSEE, during the exclusive penod of this Agreement, shall have the
sole right in accordance with the terms and conditions herein to sublicense any
alleged infringer for future use of the PATENT RIGHTS. Any upfront fees as part
of such a sublicense shall be distributed according to Article 7.4; other
royalties shall be treated per Article 4.
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ARTICLE 8 - PRODUCT LIABILITY
-----------------------------
8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold M.I.T., its trustees, officers, employees
and affiliates, harmless against all claims and expenses, including legal
expenses and reasonable attorneys' fees, arising out of the death of or injury
to any person or persons or out of any damage to property and against any other
claim, proceeding, demand, expense and liability of any kind whatsoever
resulting from the production, manufacture, sale, use, lease, consumption or
advertisement of the LICENSED PRODUCT(s) and/or LICENSED PROCESS(es) or arising
from any obligation of LICENSEE hereunder.
8.2 Before delivery of LICENSED PRODUCT(s) and/or LICENSED PROCESS(es),
LICENSEE shall obtain and carry in full force and effect liability insurance
which shall protect LICENSEE and M.I.T. in regard to events covered by Paragraph
8.1 above. Such insurance shall be written by a reputable insurance company
authorized to do business in the Commonwealth of Massachusetts, shall list
M.I.T. as an additional named insured thereunder and shall require thirty (30)
days written notice to be given to M.I.T. prior to any cancellation or material
change thereof. The limits of such occurrence shall not be less than One Million
Dollars ($1,000,000) per occurrence with an aggregate of Three Million Dollars
($3,000,000) for personal injury or death, and One Million Dollars ($1,000,000)
per occurrence with an aggregate of Three Million Dollars ($3,000,000) for
property damage. LICENSEE shall provide M.I.T. with Certificates of Insurance
evidencing the same.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT,
M.I.T. MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY
KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING. NOTHING IN THIS
AGREEMENT SIlALL BE CONSTRUED AS A REPRESENTATION MADE OR WARRANTY
GIVEN BY M.I.T. THAT THE PRACTICE BY LICENSEE OF THE LICENSE GRANTED
HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY.
8.4 M.I.T. hereby represents and warrants, to the best of its knowledge
and belief, to LICENSEE that the execution, delivery and performance of this
Agreement by M.I.T. does not, and will not, violate any commitments or
undertakings to which M.I.T. may be bound.
ARTICLE 9 - EXPORT CONTROLS
---------------------------
It is understood that M.I.T. is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (including the Arms Export Control
Act, as amended and the Export Administration Act of 1979),
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and that its obligations hereunder are contingent on compliance with applicable
United States export laws and regulations. The transfer of certain technical
data and commodities may require a license from the cognizant agency of the
United States Government anWor written assurances by LICENSEE that LICENSEE
shall not export data or commodities to certain foreign countries without prior
approval of such agency. M.I.T. neither represents that a license shall not be
required nor that, if required, it shall be issued.
ARTICLE 10 - NON-USE OF NAMES
-----------------------------
LICENSEE shall not use the names or trademarks of the Massachusetts
Institute of Technology, nor any adaptation thereof, nor the names of any of its
employees, in any advertising, promotional or sales literature without prior
written consent obtained from M.I.T., or said employee, in each case, except
that LICENSEE may state that it is licensed by M.I.T. under one or more of the
patents anWor applications comprising the PATENT RIGHTS. Such statements may
appear in the Private Placement Memoranda to be circulated by KBL Healthcare,
Inc., or in ffiings in compliance with securities laws. LICENSEE shall not use
the names or trademarks of the Massachusetts Institute of Technology, nor any
adaptation thereof, nor the names of any of its employees to imply that M.I.T.
endorses the LICENSED PRODUCTS sold by LICENSEE.
ARTICLE 11 - ASSIGNMENT
-----------------------
11.1 M.I.T. and LICENSEE agree that one of the main purposes of this
Agreement is for LICENSEE to add substantial technical value to the PATENT
RIGHTS.
11.2 LICENSEE may assign this agreement with M.I.T.'s written consent,
which consent shall not unreasonable be withheld, provided that LICENSEE has
fulfilled the diligence milestones in Article 3, up to and including section
3.2: development of a working commercial prototype in the PRODUCT AREA.
Otherwise, LICENSEE shall have no right to assign, and any attempt to assign
shall be null and void.
ARTICLE 12 - DISPUTE RESOLUTION
-------------------------------
12.1 For any and all claims, disputes or controversies arising out of, or
in connection with this Agreement, including any dispute relating to patent
validity or infringement, which the parties shall be unable to resolve within
sixty (60) days, the party raising such dispute shall prompfly advise the other
party of such claim, dispute or controversy in a writing which describes in
reasonable detail the nature of such dispute. By not later than five (5)
business days after the recipient has received such notice of dispute, each
party shall have selected for itself a representative who shall have the
authority to bind such party, and shall additionally have advised the other
party in writing of the name and title of such representative. By not later than
ten (10)
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business days after the date of such notice of dispute, such representatives
shall schedule a date for a mediation hearing with the Cambridge Dispute
Settlement Center or Endispute Inc. in Cambridge, Massachusetts. If the
representatives of the parties have not been able to resolve the dispute within
fifteen (15) business days after such mediation hearing, the parties shall have
the right to pursue any other remedies legally available to resolve such dispute
in either the Courts of the Commonwealth of Massachusetts or in the United
States District Court for the District of Massachusetts, to whose jurisdiction
for such purposes M.I.T. and LICENSEE each hereby irrevocably consents and
submits.
12.2 M.I.T. is aware that Richard Cohen is a consultant to LICENSEE and is
conducting research in the field of the patent rights and that Richard Cohen is
obligated to assist LICENSEE in protecting inventions developed by him at
LICENSEE's laboratory. In the event that it is unclear whether a particular
invention in the nature of an improvement is developed by Richard Cohen in the
context of his consulting activity with LICENSEE or in the context of his
activities as a University Professor at M.I.T., M.I.T. will approach LICENSEE in
good faith to negotiate a reasonable resolution.
12.3 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
ARTICLE 13 - TERMINATION
------------------------
13.1 If LICENSEE shall cease to carry on its business, this Agreement
shall terminate upon notice by M.I.T.
13.2 Should LICENSEE fail to make any payment whatsoever due and payable
to M.I.T. hereunder, M.I.T. shall have the right to terminate this Agreement
effective on thirty (30) days' notice, unless LICENSEE shall make all such
payments to M.I.T. within said thirty (30) day period. Upon the expiration of
the thirty (30) day period, if LICENSEE shall not have made all such payments to
M.I.T., the rights, privileges and license granted hereunder shall automatically
terminate.
13.3 Upon any material breach or default of this Agreement by LICENSEE,
other than those occurrences set out in Paragraphs 13.1 and 13.2 hereinabove,
which shall always take precedence in that order over any material breach or
default referred to in this Paragraph 13.3, M.I.T. shall have the right to
terrninate this Agreement and the rights, privileges and license granted
hereunder effective on ninety (90) days' notice to LICENSEE. Such termination
shall become automatically effective unless LICENSEE shall have cured any such
material breach or default prior to the expiration of the ninety (90) day
period.
<PAGE>
-13-
13.4 LICENSEE shall have the right to terminate this Agreement at any time
on six (6) months' notice to M.I.T., and upon payment of all amounts due M.I.T.
through the effective date of the termination.
13.5 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination. LICENSEE and any sublicensee
thereof may, however, after the effective date of such termination, sell all
LICENSED PRODUCTS, and complete LICENSED PRODUCTS in the process of manufacture
at the time of such termination and sell the same, provided that LICENSEE shall
pay to M.I.T. the Running Royalties thereon as required by Article 4 of this
Agreement and shall submit the reports required by Article 5 hereof on the sales
of LICENSED PRODUCTS.
13.6 Upon termination of this Agreement for any reason, any sublicensee
not then in default shall have the right to seek a license from M.I.T. M.I.T.
agrees to negotiate such licenses in good faith under reasonable terms and
conditions.
ARTICLE 14- PAYMENTS, NOTICES
-----------------------------
AND OTHER COMMUNICATIONS
------------------------
Any payment, notice or other communication pursuant to this Agreement shall
be sufficiently made or given on the date of mailing if sent to such party by
certified first class mall, postage prepaid, addressed to it at its address
below or as it shall designate by written notice given to the other party:
In the case of M.I.T.:
Director
Technology Licensing Office
Massachusetts Institute of Technology
Room E32-300
Cambridge, Massachusetts 02139
In the case of LICENSEE:
President
Cambridge Heart, Inc.
645 Madison Avenue, 14th Floor
New York, NY 10022
ARTICLE 15 - MOST FAVORED LICENSEE
----------------------------------
If, during the non-exclusive period of this Agreement, M.I.T. grants a
license to another party under more favorable terms as a whole than those in
this Agreement, LICENSEE may, at no extra cost, elect a license under the more
favorable terms as a whole. M.I.T. shall notify and provide a copy to LICENSEE
within thirty (30) days of granting any license to a third party: provided,
however, that M.I.T. shall not have to identify said third party to LICENSEE.
<PAGE>
-14-
ARTICLE 16 - MISCELLANEOUS PROVISIONS
-------------------------------------
16.1 This Agreement shall be construed, governed, interpreted and applied
in accordance with the laws of the Commonwealth of Massachusetts, U.S.A., except
that questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
16.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
16.3 The provisions of this Agreement are severable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
16.4 LICENSEE agrees to mark the LICENSED PRODUCTS sold in the United
States with all applicable United States patent numbers. All LICENSED PRODUCTS
shipped to or sold in other countries shall be marked in such a manner as to
conform with the patent laws and practice of the country of manufacture or sale.
16.5 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the day
and year set forth below.
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
By /s/ Lita L. Nelsen
------------------------------------------
Name LITA L. NELSEN
----------------------------------------
Title DIRECTOR, TECHNOLOGY LICENSING OFFICE
---------------------------------------
Date September 28, 1993
----------------------------------------
CAMBRIDGE HEART, INC.
By /s/ Charlene Krauss
------------------------------------------
Name CHARLENE KRAUSS
----------------------------------------
Title CHAIR
---------------------------------------
Date September 29, 1993
----------------------------------------
<PAGE>
-15-
APPENDIX CEI-A
--------------
UNITED STATES PATENT RIGHTS
M.I.T. Case No. 5444
U.S. Patent 5,146,926
"Method and Apparatus for Imaging Electrical Activity in a Biological System"
By Richard J. Cohen
<PAGE>
-16-
APPENDIX CEI-B
--------------
Foreign countries in which PATENT RIGHTS shall be filed, prosecuted and
maintained in accordance with Article 6:
M.I.T. Case No. 5444:
Canada: Pending
EPC: Pending
Japan: Pending
<PAGE>
-17-
APPENDIX CEI-C
--------------
COPYRIGHTABLE MATERIAL AND TANGIBLE PROPERTY
Cardiac Electrical Imaging Code.92
Blueprints and Circuit Diagrams for Amplifier Bank
<PAGE>
Exhibit 10.14
ADDENDUM P
"Pacing Technology for Prevention of Cardiac Dysrhythmias"
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
LICENSE AGREEMENT
(EXCLUSIVE)
Date: September 28, 1993
<PAGE>
(i)
Vers 11/1/91 LP/:to CardioDynamics lic agt.P 9/28
Patent/Ex Date: September 28, 1993
TABLE OF CONTENTS
PAGE
----
PREAMBLE......................................................................1
- --------
ARTICLES
- --------
1 - DEFINITIONS...............................................................1
2 - GRANT.....................................................................3
3 - DUE DILIGENCE.............................................................4
4 - ROYALTIES.................................................................5
5 - REPORTS AND RECORDS.......................................................7
6 - PATENT PROSECUTION........................................................8
7 - INFRINGEMENT..............................................................8
8 - PRODUCT LIABILITY.........................................................9
9 - EXPORT CONTROLS...........................................................10
10 - NON-USE OF NAMES.........................................................11
11 - ASSIGNMENT...............................................................11
12 - DISPUTE RESOLUTION.......................................................11
13 - TERMINATION..............................................................12
14 - PAYMENTS, NOTICES........................................................13
15 - MOST FAVORED LICENSEE....................................................13
16 - MISCELLANEOUS PROVISIONS.................................................13
APPENDIX P-A..................................................................15
APPENDIX P-B..................................................................16
APPENDIX P-C..................................................................17
<PAGE>
-1-
This Agreement is made and entered into this day of , 199 , (the
"Effective Date") by and between MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a
corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 77 Massachusetts Avenue,
Cambridge, Massachusetts 02139, U.S.A. (hereinafter referred to as "M.I.T."),
and CAMBRIDGE HEART, INC., a corporation duly organized under the laws of
Delaware and having its principal office at 645 Madison Avenue, 14th Floor, New
York, NY 10022 (hereinafter referred to as "LICENSEE").
WITNESSETH
----------
WHEREAS, M.I.T. hereby represents that it is the owner of certain PATENT
RIGHTS and IMPROVEMENTS (as both terms are later defined herein) relating to
M.I.T. Case No.5975, "Pacing Technology for Prevention of Cardiac Dysrhythmias"
by Richard J. Cohen and has the right to grant licenses under said PATENT
RIGHTS, subject only to a royalty-free, nonexclusive license heretofore granted
to the United States Government;
WHEREAS, M.I.T. desires to have the PATENT RIGHTS utilized in the public
interest and is willing to grant a license thereunder;
WHEREAS, LICENSEE has represented to M.I.T., to induce M.I.T. to enter into
this Agreement, that LICENSEE shall commit itself to a thorough, vigorous and
diligent program of exploiting the PATENT RIGHTS so that public utilization
shall result therefrom; and
WHEREAS, LICENSEE desires to obtain a license under the PATENT RIGHTS upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
ARTICLE 1-DEFINITIONS
---------------------
For the purposes of this Agreement, the following words and phrases shall
have the following meanings:
1.1 "LICENSEE" shall include a related company of CAMBRIDGE HEART, INC.,
the voting stock of which is directly or indirectly at least fifty percent (50%)
owned or controlled by
CAMBRIDGE HEART, INC.
1.2 "PATENT RIGHTS" shall mean all of the following M.I.T. intellectual
property:
(a) the United States and foreign patents and/or patent applications
listed in Appendices P-A and P-B;
(b) United States and foreign patents issued from the applications of (a)
above and from divisionals and continuations of these applications;
(c) claims of U.S. and foreign continuation-in-part applications, and of
the
<PAGE>
-2-
resulting patents, which are directed to subject matter specifically
described in the disclosure of (a) above;
(d) claims of all foreign patent applications, and of the resulting
patents, which are directed to subject matter specifically described
in the United States patents and/or patent applications described in
(a), (b) or (c) above; and
(e) any reissues of patents described in (a), (b), (c) or (d) above;
(f) COPYRIGHTABLE MATERIAL and TANGIBLE PROPERTY listed in Appendix P-C,
including:
i) Computer Code
ii) Drawings and Circuit Diagrams
1.3 A "LICENSED PRODUCT" shall mean any product or part thereof which:
(a) is covered in whole or in part by an issued, unexpired claim or a
pending claim contained in IMPROVEMENTS or the PATENT RIGHTS in the
country in which any LICENSED PRODUCT is made, used or sold; and/or
(b) is manufactured by using a process which is covered in whole or in
part by an issued, unexpired claim or a pending claim contained in
IMPROVEMENTS or the PATENT RIGHTS in the country in which any LICENSED
PROCESS is used or in which such product or part thereof is used or
sold.
1.4 A "LICENSED PROCESS" shall mean any process which is covered in whole
or in part by an issued, unexpired claim or a pending claim contained in
IMPROVEMENTS or the PATENT RIGHTS.
1.5 "NET SALES" shall mean LICENSEE's (and its sublicensees') billings for
LICENSED PRODUCTS and LICENSED PROCESSES produced hereunder less the sum of the
following:
(a) discounts allowed in amounts customary in the trade;
(b) sales, tariff duties and/or use taxes directly imposed and with
reference to particular sales;
(c) outbound transportation prepaid or allowed; and
(d) amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by LICENSEE and on
its payroll, or for cost of collections. LICENSED PRODUCTS shall be considered
"sold" when billed out or invoiced.
<PAGE>
-3-
1.6 "TERRITORY" shall be worldwide except for those countries in which
LICENSEE was asked to pay the cost of filing, prosecuting and maintaining the
PATENT RIGHTS pursuant to Article 6.2, and elected not to pay those costs.
1.7 "FIELD OF USE" shall mean all.
1.8 "PRODUCT AREA" shall mean: Pacing.
1.9 "SUBLICENSEE" shall mean a third party sublicensed by LICENSEE to
make, have made, use, lease and sell the LICENSED PRODUCT(S) and LICENSED
PROCESS(ES).
1.10 "IMPROVEMENTS" shall mean any and all modifications, refinements,
etc. dominated by the PATENT RIGHTS claims and conceived or reduced to practice
over the next three (3) years by Richard Cohen and his subordinates at M.I.T.,
provided, however, that any rights to such IMPROVEMENTS granted herein are
subject to M.I.T. contractual commitments to third party sponsors of research
under which IMPROVEMENTS are made.
1.11 LICENSE AGREEMENTS shall mean "Assessing Myocardial Electrical
Stability", "Cardiac Electrical Imaging", "Cardiovascular System
Identification", and "Pacing Technology for Prevention of Cardiac Dysrhythmias."
1.12 "EFFECTIVE DATE" shall mean the day on which all four LICENSE
AGREEMENTS were executed.
ARTICLE 2 - GRANT
-----------------
2.1 M.I.T. hereby grants to LICENSEE the right and license to make, have
made, use, lease and sell the LICENSED PRODUCTS and to practice the LICENSED
PROCESSES in the TERRITORY for the FIELD OF USE to the end of the term for which
the PATENT RIGHTS are granted unless this Agreement shall be sooner terminated
according to the terms hereof.
2.2 LICENSEE agrees that LICENSED PRODUCTS leased or sold in the United
States shall be manufactured substantially in the United States, as required by
35 U.S.C.204.
2.3 In order to establish a period of exclusivity for LICENSEE, M.I.T.
hereby agrees that it shall not grant any other license to make, have made, use,
lease and sell LICENSED PRODUCTS or to utilize LICENSED PROCESSES in the
TERRITORY for the FIELD OF USE during the period of time commencing with the
EFFECTIVE DATE of this Agreement and terminating with the first to occur of:
(a) the expiration of twelve (12) years after the first commercial sale of
a LICENSED PRODUCT; or
(b) the expiration of fifteen (15) years after the EFFECTIVE DATE of this
Agreement; provided, however, that if an application for premarket
approval has been submitted to the FDA for a LICENSED PRODUCT prior to
the expiration of that fifteen (15) year period, then the time spent
by that application in the FDA shall be added to the fifteen (15) year
period.
<PAGE>
-4-
2.4 At the end of the exclusive period, the license granted hereunder
shall become nonexclusive and shall extend to the end of the term or terms for
which any PATENT RIGHTS are issued, unless sooner terminated as hereinafter
provided. The period of exclusivity may be extended upon the written consent of
M.I.T., which consent, subject to LICENSEE's diligent and successful
commercialization of the PATENT RIGHTS, shall not unreasonably be withheld.
2.5 M.I.T. reserves the right to practice under the PATENT RIGHTS and to
use and distribute to third parties for noncommercial research purposes.
2.6 LICENSEE shall have the right to enter into sublicensing agreements
for the rights, privileges and licenses granted hereunder only during the
exclusive period of this Agreement. Such sublicenses may extend past the
expiration date of the exclusive period of this Agreement, but any exclusivity
of such sublicenses shall expire upon the expiration of LICENSEE's exclusivity.
Upon any termination of this Agreement, sublicensees' rights shall also
terminate, subject to Paragraph 13.6 hereof.
2.7 LICENSEE agrees that any sublicenses granted by it shall provide that
the obligations to M.I.T. of Articles 2, 5, 7, 8, 9, 10, 12, 13, and 15 of this
Agreement shall be binding upon the sublicensee as if it were a party to this
Agreement. LICENSEE further agrees to attach copies of these Articles to
sublicense agreements.
2.8 LICENSEE agrees to forward to M.I.T. a copy of any and all sublicense
agreements promptly upon execution by the parties.
2.9 LICENSEE shall not receive from sublicensees anything of value in lieu
of cash payments in consideration for any sublicense under this Agreement,
without the express prior written permission of M.I.T. In the event LICENSEE and
M.I.T. agree on a cash equivalent value for the transaction and appropriate
royalty payments to M.I.T., M.I.T. shall provide its written consent.
2.10 The license granted hereunder shall not be construed to confer any
rights upon LICENSEE by implication, estoppel or otherwise as to any technology
not specifically set forth in Appendices P-A, P-B, P-C hereof.
ARTICLE 3 - DUE DILIGENCE
-------------------------
3.1 LICENSEE either directly or through its SUBLICENSEES shall use its
best efforts to bring one or more LICENSED PRODUCTS or LICENSED PROCESSES to
market through an ongoing, thorough, vigorous and diligent program for
exploitation of the PATENT RIGHTS and to continue vigorous, ongoing, active,
diligent marketing efforts for one or more LICENSED PRODUCTS or LICENSED
PROCESSES throughout the life of this Agreement. Such efforts
<PAGE>
-5-
shall include, but shall not be limited to, conducting clinical trials and
evaluations necessary to obtain premarket FDA approval.
3.2 In addition, LICENSEE shall adhere to the following milestones:
(a) LICENSEE shall deliver to M.I.T. on or before three (3) month after
the EFFECTIVE DATE a business plan showing the amount of money, number
and kind of personnel and time budgeted and planned for each phase of
development of the LICENSED PRODUCTS and LICENSED PROCESSES in the
PRODUCT AREA and shall provide similar reports to M.I.T. on or before
December 31 of each year.
(b) LICENSEE shall raise and hold a minimum of Two Million Dollars
($2,000,000) aggregate in investment capital on or before the
EFFECTIVE DATE.
(c) LICENSEE shall have raised a total of Three Million Dollars
($3,000,000) cumulative in investment capital on or before one year
after the EFFECTIVE
DATE.
(d) LICENSEE and/or SUBLICENSEE shall have developed a working commercial
prototype of a LICENSED PRODUCT and, if needed for commercial sale,
shall have filed an application for premarket FDA approval before six
(6) years after the EFFECTIVE DATE of this License Agreement.
3.3 LICENSEE and/or SUBLICENSEE shall make commercial sales of LICENSED
PROCESSES at least according to the following schedule:
2000 and each year thereafter $50,000;
3.4 LICENSEE's failure to perform in accordance with Paragraphs 3.1, 3.2
and 3.3 above shall be grounds for M.I.T. to terminate this Agreement pursuant
to Paragraph 13.3 hereof.
3.5 If LICENSEE has diligently been pursuing the FDA approval required to
sell LICENSED PRODUCTS or products utilizing LICENSED PROCESSES on the
commercial market, and can demonstrate such diligence to M.I.T. by means of
written documents, then LICENSEE may request a reasonable revision to the sales
milestones in section 3.3, which revision shall not unreasonably be withheld.
ARTICLE 4 - ROYALTIES
---------------------
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay royalties to M.I.T. in the manner hereinafter provided to the end of
the term of the PATENT RIGHTS or until this Agreement shall be terminated:
(a) License Issue Fee equal to the non-reimbursed sum spent by M.I.T.
prior to the OPTION PERIOD to file, prosecute, and maintain the PATENT
RIGHTS listed in Appendices P-A and P-B plus Nine Thousand Three
Hundred Seventy-Five Dollars ($9,375), such Issue Fee payable
according to the following schedule:
<PAGE>
-6-
(i) One-third (1/3) of the non-reimbursed sum plus Six Thousand Two
Hundred Fifty Dollars ($6,250) is due upon the execution of this
Agreement;
(ii) One-third (1/3) of the non-reimbursed sum plus Three Thousand
One Hundred Twenty-Five Dollars ($3,125) is due one (1) year
after the EFFECTIVE DATE of this Agreement;
(iii) One-third (1/3) of the non-reimbursed sum is due two (2) years
after the EFFECTIVE DATE of this Agreement;
(b) For LICENSED PRODUCTS and LICENSED PROCESSES which do not contain a
substantial technical contribution, improvement, or change developed
by LICENSEE, Running Royalties in an amount equal to Two Percent (2%)
of the NET SALES of the LICENSED PRODUCTS leased or sold by or for
LICENSEE and/or its SUBLICENSEE(S).
(c) For LICENSED PRODUCTS and LICENSED PROCESSES containing a substantial
technical contribution, improvement, or change developed by LICENSEE,
Running Royalties in an amount equal to One and One-Half Percent
(1.5%) of the NET SALES of the LICENSED PRODUCTS leased or sold by
SUBLICENSEE(S), or Twelve Percent (12%) of gross revenue received by
LICENSEE from SUBLICENSEE(S), whichever of the two above referenced
means of calculating sublicensing revenue yields a smaller number.
(d) License Maintenance Fees of Five Thousand Dollars ($5,000) per year
payable on January 1, 1995 and on January 1 of each subsequent year
thereafter during the exclusive period of this Agreement; provided,
however, that the License Maintenance Fee and sublicense royalties
subsequently due under subparagraph 4.1(d) for each said year, if any,
shall be creditable against Running Royalties for said year. No
License Maintenance Fees are due during the non-exclusive period of
this License Agreement.
4.2 All payments due hereunder shall be paid in full, without deduction of
taxes or other fees which may be imposed by any government and which shall be
paid by LICENSEE. if Royalties were paid on billings that were subsequently
uncollected, such overpaid Royalties will be deducted from those due in
subsequent periods.
4.3 No multiple royalties shall be payable because any LICENSED PRODUCT,
its manufacture, use, lease or sale are or shall be covered by more than one
PATENT RIGHTS patent application or PATENT RIGHTS patent licensed under this
Agreement. If a single product is covered by more than LICENSE AGREEMENT, then
the total royalty paid to M.I.T. on such product shall not exceed the maximum
royalty applicable under any single LICENSE AGREEMENT.
4.4 Royalty payments shall be paid in United States dollars in Cambridge,
Massachusetts, or at such other place as M.I.T. may reasonably designate
consistent with the laws and regulations controlling in any foreign country. If
any currency conversion shall be required in connection with the payment of
royalties hereunder, such conversion shall be made by using the exchange rate
<PAGE>
-7-
prevailing at the Chase Manhattan Bank (N.A.) on the last business day of the
calendar quarterly reporting period to which such royalty payments relate.
ARTICLE 5 - REPORTS AND RECORDS
-------------------------------
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amounts payable to M.I.T. hereunder. Said books of account shall be kept at
LICENSEE's principal place of business or the principal place of business of the
appropriate division of LICENSEE to which this Agreement relates. Said books and
the supporting data shall be open at all reasonable times for three (3) years
following the end of the calendar year to which they pertain, to the inspection
of M.I.T. or its agents for the purpose of verifying LICENSEE's royalty
statement or compliance in other respects with this Agreement. Should such
inspection lead to the discovery of a greater than ten percent (10%) discrepancy
in reporting, LICENSEE agrees to pay half the cost of such inspection.
5.2 LICENSEE, within sixty (60) days after December 31 of each year, shall
deliver to M.I.T. true and accurate reports, giving such particulars of the
business conducted by LICENSEE and its sublicensees during the preceding year
under this Agreement as shall be pertinent to a royalty accounting hereunder.
These shall include at least the following:
(a) number of LICENSED PRODUCTS manufactured and sold by LICENSEE and all
sublicensees;
(b) total billings for LICENSED PRODUCTS sold by LICENSEE and all
sublicensees;
(c) accounting for all LICENSED PROCESSES used or sold by LICENSEE and all
sublicensees;
(d) deductions applicable as provided in Paragraph 1.5;
(e) total royalties due; and
(f) names and addresses of all sublicensees of LICENSEE.
5.3 With each such report submitted, LICENSEE shall pay to M.I.T. the
royalties due and payable under this Agreement. If no royalties shall be due,
LICENSEE shall so report.
5.4 On or before the ninetieth (90th) day following the close of
LICENSEE's fiscal year, LICENSEE shall provide M.I.T. with LICENSEE's certified
financial statements for the preceding fiscal year including, at a minimum, a
Balance Sheet and an Operating Statement.
5.5 The royalty payments set forth in this Agreement and amounts due under
Article 6 shall, if overdue, bear interest until payment at a per annum rate two
percent (2%) above the prime rate in effect at the Chase Manhattan Bank (N.A.)
on the due date. The payment of such interest
<PAGE>
-8-
shall not foreclose M.I.T. from exercising any other rights it may have as a
consequence of the lateness of any payment.
ARTICLE 6 - PATENT PROSECUTION
------------------------------
6.1 M.I.T. shall apply for, seek prompt issuance of, and maintain during
the term of this Agreement the PATENT RIGHTS in the United States and in the
foreign countries listed in Appendix P-B hereto. Appendix P-B may be amended by
verbal agreement of both parties, such agreement to be confirmed in writing
within ten (10) days. The prosecution, filing and maintenance of all PATENT
RIGHTS patents and applications shall be the primary responsibility of M.I.T.;
provided, however, LICENSEE shall have reasonable opportunities to advise M.I.T.
and shall cooperate with M.I.T. in such prosecution, filing and maintenance of
all patents and applications included within the PATENT RIGHTS.
6.2 Payment of all fees and costs relating to the filing, prosecution, and
maintenance of the PATENT RIGHTS shall be the responsibility of LICENSEE,
whether such fees and costs were incurred before or after the date of this
Agreement. LICENSEE shall have the right to approve the attorney selected by
M.I.T. LICENSEE may elect to discontinue all or a portion of the prosecution of
the PATENT RIGHTS, provided that LICENSEE gives M.I.T. reasonable notice, so
that M.I.T. may, at its own expense, elect to preserve those rights.
ARTICLE 7- INFRINGEMENT
-----------------------
7.1 Each party shall inform the other party promptly in writing of any
alleged infringement of the PATENT RIGHTS by a third party and of any available
evidence thereof.
7.2 During the term of exclusivity of this Agreement, LICENSEE shall have
the right, but shall not be obligated, to prosecute at its own expense all
infringements of the PATENT RIGHTS and, in furtherance of such right, M.I.T.
hereby agrees that LICENSEE may include M.I.T. as a party plaintiff in any such
suit, without expense to M.I.T.. The total cost of any such infringement action
commenced or defended solely by LICENSEE shall be borne by LICENSEE and LICENSEE
shall keep any recovery or damages for past infringement derived therefrom.
7.3 If within six (6) months after having been notified of any alleged
infringement, LICENSEE shall have been unsuccessful in persuading the alleged
infringer to desist and shall not have brought and shall not be diligently
prosecuting an infringement action, or if LICENSEE shall notify M.I.T. at any
time prior thereto of its intention not to bring suit against any alleged
infringer then, and in those events only, M.I.T. shall have the right, but shall
not be obligated, to prosecute at its own expense any infringement of the PATENT
RIGHTS and M.I.T. may, for such purposes, use the name of LICENSEE as party
plaintiff. No settlement, consent judgment or other
<PAGE>
-9-
voluntary final disposition of the suit may be entered into without the consent
of M.I.T. and LICENSEE, which consent shall not unreasonably be withheld.
7.4 In the event that LICENSEE shall undertake the enforcement and/or
defense of the PATENT RIGHTS by litigation, LICENSEE may withhold up to fifty
percent (50%) of the payments otherwise thereafter due M.I.T. under Article 4
hereunder and apply the same toward reimbursement of up to half of LICENSEE's
expenses, including reasonable attorneys' fees, in connection therewith. Any
recovery of damages by LICENSEE for each such suit shall be applied first in
satisfaction of any unreimbursed expenses and legal fees of LICENSEE relating to
such suit, and next toward reimbursement of M.I.T. for any payments under
Article 4 past due or withheld and applied pursuant to this Article 7. The
balance remaining from any such recovery shall be divided so that the fraction
of the recovery due M.I.T. is calculated by creating a fraction, the numerator
of which is the amount of royalties withheld, and the denominator of which is
the cost of litigation paid by LICENSEE, but in no event shall such sum be less
than Twelve Percent (12%) of the net recovery.
7.5 In the event that a declaratory judgment action alleging invalidity or
noninfringement of any of the PATENT RIGHTS shall be brought against LICENSEE,
M.I.T., at its option, shall have the right, within thirty (30) days after
commencement of such action, to intervene and take over the sole defense of the
action at its own expense.
7.6 In any infringement suit as either party may institute to enforce the
PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at the
request and expense of the party initiating such suit, cooperate in all respects
and, to the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like.
7.7 LICENSEE, during the exclusive period of this Agreement, shall have
the sole right in accordance with the terms and conditions herein to sublicense
any alleged infringer for future use of the PATENT RIGHTS. Any upfront fees as
part of such a sublicense shall be distributed according to Article 7.4; other
royalties shall be treated per Article 4.
ARTICLE 8 - PRODUCT LIABILITY
-----------------------------
8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold M.I.T., its trustees, officers, employees
and affiliates, harmless against all claims and expenses, including legal
expenses and reasonable attorneys fees, arising out of the death of or injury to
any person or persons or out of any damage to property and against any other
claim, proceeding, demand, expense and liability of any kind whatsoever
resulting from the production, manufacture, sale, use, lease, consumption or
advertisement of the LICENSED
<PAGE>
-10-
PRODUCT(s) and/or LICENSED PROCESS(es) or arising from any obligation of
LICENSEE hereunder.
8.2 Before delivery of a LICENSED PRODUCT, LICENSEE shall obtain and carry
in full force and effect liability insurance which shall protect LICENSEE and
M.I.T. in regard to events covered by Paragraph 8.1 above. Such insurance shall
be written by a reputable insurance company authorized to do business in the
Commonwealth of Massachusetts, shall list M.I.T. as an additional named insured
thereunder and shall require thirty (30) days written notice to be given to
M.I.T. prior to any cancellation or material change thereof. The limits of such
occurrence shall not be less than One Million Dollars ($1,000,000) per
occurrence with an aggregate of Three Million Dollars ($3,000,000) for personal
injury or death, and One Million Dollars ($1,000,000) per occurrence with an
aggregate of Three Million Dollars ($3,000,000) for property damage. LICENSEE
shall provide M.I.T. with Certificates of Insurance evidencing the same.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, M.I.T.
MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS
OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR
PENDING. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE
OR WARRANTY GIVEN BY M.I.T. THAT THE PRACTICE BY LICENSEE OF THE LICENSE GRANTED
HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY.
8.4 M.I.T. hereby represents and warrants, to the best of its knowledge
and belief, to LICENSEE that the execution, delivery and performance of this
Agreement by M.I.T. does not, and will not, violate any commitments or
undertakings to which M.I.T. may be bound.
ARTICLE 9 - EXPORT CONTROLS
---------------------------
It is understood that M.I.T. is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (including the Arms Export Control
Act, as amended and the Export Administration Act of 1979), and that its
obligations hereunder are contingent on compliance with applicable United States
export laws and regulations. The transfer of certain technical data and
commodities may require a license from the cognizant agency of the United States
Government and/or written assurances by LICENSEE that LICENSEE shall not export
data or commodities to certain foreign countries without prior approval of such
agency. M.I.T. neither represents that a license shall not be required nor that,
if required, it shall be issued.
<PAGE>
-11-
ARTICLE 10 - NON-USE OF NAMES
-----------------------------
LICENSEE shall not use the names or trademarks of the Massachusetts
Institute of Technology, nor any adaptation thereof, nor the names of any of its
employees, in any advertising, promotional or sales literature without prior
written consent obtained from M.I.T., or said employee, in each case, except
that LICENSEE may state that it is licensed by M.I.T. under one or more of the
patents and/or applications comprising the PATENT RIGHTS. Such statements may
appear in the Private Placement Memoranda to be circulated by CardioDynamics,
Inc., or in filings in compliance with securities laws. LICENSEE shall not use
the names or trademarks of the Massachusetts Institute of Technology, nor any
adaptation thereof, nor the names of any of its employees to imply that M.I.T.
endorses the LICENSED PRODUCTS sold by LICENSEE.
ARTICLE 11 - ASSIGNMENT
-----------------------
11.1 M.I.T. and LICENSEE agree that one of the main purposes of this
Agreement is for LICENSEE to add substantial technical value to the PATENT
RIGHTS.
11.2 LICENSEE may assign this agreement with M.I.T.'s written consent,
which consent shall not unreasonably be withheld, provided that LICENSEE has
fulfilled the diligence milestones in Article 3, up to and including section
3.2(c). Furthermore, LICENSEE must have experimentally proved the concept of
Pacing. Otherwise, LICENSEE shall have no right to assign, and any attempt to
assign shall be null and void.
ARTICLE 12 - DISPUTE RESOLUTION
-------------------------------
12.1 For any and all claims, disputes or controversies arising out of, or
in connection with this Agreement, including any dispute relating to patent
validity or infringement, which the parties shall be unable to resolve within
sixty (60) days, the party raising such dispute shall promptly advise the other
party of such claim, dispute or controversy in a writing which describes in
reasonable detail the nature of such dispute. By not later than five (5)
business days after the recipient has received such notice of dispute, each
party shall have selected for itself a representative who shall have the
authority to bind such party, and shall additionally have advised the other
party in writing of the name and title of such representative. By not later than
ten (10) business days after the date of such notice of dispute, such
representatives shall schedule a date for a mediation hearing with the Cambridge
Dispute Settlement Center or Endispute Inc. in Cambridge, Massachusetts. If the
representatives of the parties have not been able to resolve the dispute within
fifteen (15) business days after such mediation hearing, the parties shall have
the right to pursue any other remedies legally available to resolve such dispute
in either the Courts of the Commonwealth of Massachusetts or in the United
States District Court for the District of
<PAGE>
-12-
Massachusetts, to whose jurisdiction for such purposes M.I.T. and LICENSEE each
hereby irrevocably consents and submits.
12.2 M.I.T. is aware that Richard Cohen is a consultant to LICENSEE and is
conducting research in the field of the patent rights and that Richard Cohen is
obligated to assist LICENSEE in protecting inventions developed by him at
LICENSEE's laboratory. In the event that it is unclear whether a particular
invention in the nature of an improvement is developed by Richard Cohen in the
context of his consulting activity with LICENSEE or in the context of his
activities as a University Professor at M.I.T., M.I.T. will approach LICENSEE in
good faith to negotiate a reasonable resolution.
12.3 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
ARTICLE 13 - TERMINATION
------------------------
13.1 If LICENSEE shall cease to carry on its business, this Agreement
shall terminate upon notice by M.I.T.
13.2 Should LICENSEE fail to make any payment whatsoever due and payable
to M.I.T. hereunder, M.I.T. shall have the right to terminate this Agreement
effective on thirty (30) days' notice, unless LICENSEE shall make all such
payments to M.I.T. within said thirty (30) day period. Upon the expiration of
the thirty (30) day period, if LICENSEE shall not have made all such payments to
M.I.T., the rights, privileges and license granted hereunder shall automatically
terminate.
13.3 Upon any material breach or default of this Agreement by LICENSEE,
other than those occurrences set out in Paragraphs 13.1 and 13.2 hereinabove,
which shall always take precedence in that order over any material breach or
default referred to in this Paragraph 13.3, M.I.T. shall have the right to
terminate this Agreement and the rights, privileges and license granted
hereunder effective on ninety (90) days' notice to LICENSEE. Such termination
shall become automatically effective unless LICENSEE shall have cured any such
material breach or default prior to the expiration of the ninety (90) day
period.
13.4 LICENSEE shall have the right to terminate this Agreement at any time
on six (6) months' notice to M.I.T., and upon payment of all amounts due M.I.T.
through the effective date of the termination.
13.5 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination. LICENSEE and any sublicensee
thereof may, however, after the effective date of such termination, sell all
LICENSED PRODUCTS, and complete LICENSED PRODUCTS in the process of manufacture
at the time of such termination and sell the same, provided that LICENSEE
<PAGE>
-13-
shall pay to M.I.T. the Running Royalties thereon as required by Article 4 of
this Agreement and shall submit the reports required by Article 5 hereof on the
sales of LICENSED PRODUCTS.
13.6 Upon termination of this Agreement for any reason, any sublicensee
not then in default shall have the right to seek a license from M.I.T. M.I.T.
agrees to negotiate such licenses in good faith under reasonable terms and
conditions.
ARTICLE 14 - PAYMENTS, NOTICES
------------------------------
AND OTHER COMMUNICATIONS
------------------------
Any payment, notice or other communication pursuant to this Agreement shall
be sufficiently made or given on the date of mailing if sent to such party by
certified first class mail, postage prepaid, addressed to it at its address
below or as it shall designate by written notice given to the other party:
In the case of M.I.T.:
Director
Technology Licensing Office
Massachusetts Institute of Technology
Room E32-300
Cambridge, Massachusetts 02139
In the case of LICENSEE:
President
Cambridge Heart, Inc.
645 Madison Avenue, 14th Floor
New York,NY 10022
ARTICLE 15 - MOST FAVORED LICENSEE
----------------------------------
If, during the non-exclusive period of this Agreement, M.I.T. grants a
license to another party under more favorable terms as a whole than those in
this Agreement, LICENSEE may, at no extra cost, elect a license under the more
favorable terms as a whole. M.I.T. shall notify and provide a copy to LICENSEE
within thirty (30) days of granting any license to a third party: provided,
however, that M.I.T. shall not have to identify said third party to LICENSEE.
ARTICLE 16 - MISCELLANEOUS PROVISIONS
-------------------------------------
16.1 This Agreement shall be construed, governed, interpreted and applied
in accordance with the laws of the Commonwealth of Massachusetts, U.S.A., except
that questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
<PAGE>
-14-
16.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
16.3 The provisions of this Agreement are severable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
16.4 LICENSEE agrees to mark the LICENSED PRODUCTS sold in the United
States with all applicable United States patent numbers. All LICENSED PRODUCTS
shipped to or sold in other countries shall be marked in such a manner as to
conform with the patent laws and practice of the country of manufacture or sale.
16.5 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the day
and year set forth below.
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
By /s/ Lita L. Nelsen
------------------------------------------
Name LITA L. NELSEN
----------------------------------------
Title DIRECTOR, TECHNOLOGY LICENSING OFFICE
---------------------------------------
Date Sept 28, 1993
----------------------------------------
CAMBRIDGE HEART, INC.
By /s/ Marlene Krauss
------------------------------------------
Name Marlene Krauss
----------------------------------------
Date 9/29/93
----------------------------------------
<PAGE>
-15-
APPENDIX P-A
------------
UNITED STATES PATENT RIGHTS
M.I.T. Case No. 5975
"Pacing Technology for Prevention of Cardiac Dysrythmias"
By Richard J. Cohen
<PAGE>
-16-
APPENDIX P-B
------------
Foreign countries in which PATENT RIGHTS shall be filed, prosecuted and
maintained in accordance with Article 6:
M.I.T. Case No. 5975:
Pending Instructions
<PAGE>
-17-
APPENDIX P-C
------------
COPYRIGHTABLE MATERIAL AND TANGIBLE PROPERTY
- None To Date -
<PAGE>
EXHIBIT 10.15
ADDENDUM CSI
"Cardiovascular Identification"
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
LICENSE AGREEMENT
(EXCLUSIVE)
Date: September 28, 1993
<PAGE>
(i)
Vers 11/1/91 LP/:to CardioDynamics lic agt.CSI. 9/28
Patent/Ex Date: September 28, 1993
TABLE OF CONTENTS
PAGE
----
PREAMBLE........................................................1
--------
ARTICLES
--------
1 - DEFINITIONS.................................................1
2 - GRANT.......................................................3
3 - DUE DILIGENCE...............................................5
4 - ROYALTIES...................................................6
5 - REPORTS AND RECORDS.........................................7
6 - PATENT PROSECUTION..........................................8
7 - INFRINGEMENT................................................8
8 - PRODUCT LIABILITY...........................................10
9 - EXPORT CONTROLS.............................................11
10 - NON-USE OF NAMES...........................................11
11 - ASSIGNMENT.................................................11
12 - DISPUTE RESOLUTION.........................................11
13 - TERMINATION................................................12
14 - PAYMENTS, NOTICES..........................................13
15 - MOST FAVORED LICENSEE......................................13
16 - MISCELLANEOUS PROVISIONS...................................14
APPENDIX CSI-A..................................................15
APPENDIX CSI-B..................................................16
APPENDIX CSI-C..................................................17
<PAGE>
-1-
This Agreement is made and entered into this day of , 199 , (the
"Effective Date") by and between MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a
corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 77 Massachusetts Avenue,
Cambridge, Massachusetts 02139, U.S.A. (hereinafter referred to as "M.I.T."),
and CAMBRIDGE HEART, INC., a corporation duly organized under the laws of
Delaware and having its principal office at 645 Madison Avenue, 14th Floor, New
York, NY 10022 (hereinafter referred to as "LICENSEE").
WITNESSETH
----------
WHEREAS, M.I.T. hereby represents that it is the owner of certain PATENT
RIGHTS and IMPROVEMENTS (as both terms are later defined herein) relating to
M.I.T. Case No.4227, U.S. Patent 4,777,960, "Method and Apparatus for the
Assessment of Autonomic Response by Broad-Band Excitation" by Ronald Berger,
Jerome P. Saul, Ming Hui Chen, and Richard J. Cohen; M.I.T. Case No.4738, U.S.
Patent 4,930,517, "Method and Apparatus for Physiologic System Identification"
by Richard J. Cohen, Marvin Appel, and Ronald Berger; and M.I.T. Case No.4820,
U.S. Patent 4,979,110, "Characterizing the Statistical Properties of a
Biological Signal" by Richard J. Cohen and Paul Albrecht; and has the right to
grant licenses under said PATENT RIGHTS, subject only to a royalty-free,
nonexclusive license heretofore granted to the United States Government;
WHEREAS, M.I.T. desires to have the PATENT RIGHTS utilized in the public
interest and is willing to grant a license thereunder;
WHEREAS, LICENSEE has represented to M.I.T., to induce M.I.T. to enter into
this Agreement, that LICENSEE shall commit itself to a thorough, vigorous and
diligent program of exploiting the PATENT RIGHTS so that public utilization
shall result therefrom; and
WHEREAS, LICENSEE desires to obtain a license under the PATENT RIGHTS upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
-----------------------
For the purposes of this Agreement, the following words and phrases shall
have the following meanings:
1.1 "LICENSEE" shall include a related company of CAMBRIDGE HEART, INC.,
the voting stock of which is directly or indirectly at least fifty percent (50%)
owned or controlled by
CAMBRIDGE HEART, INC.
1.2 "PATENT RIGHTS" shall mean all of the following M.I.T. intellectual
property:
<PAGE>
-2-
(a) the United States and foreign patents and/or patent applications
listed in Appendices CS I-A and CS I-B;
(b) United States and foreign patents issued from the applications of (a)
above and from divisionals and continuations of these applications;
(c) claims of U.S. and foreign continuation-in-part applications, and of
the resulting patents, which are directed to subject matter
specifically described in the disclosure of (a) above;
(d) claims of all foreign patent applications, and of the resulting
patents, which are directed to subject matter specifically described
in the United States patents and/or patent applications described in
(a), (b) or (c) above; and
(e) any reissues of patents described in (a), (b), (c) or (d) above;
(f) COPYRIGHTABLE MATERIAL and TANGIBLE PROPERTY listed in Appendix CSI-C,
including:
i) Computer Code
ii) Drawings and Circuit Diagrams
1.3 A "LICENSED PRODUCT" shall mean any product or part thereof which:
(a) is covered in whole or in part by an issued, unexpired claim or a
pending claim contained in IMPROVEMENTS or the PATENT RIGHTS in the
country in which any LICENSED PRODUCT is made, used or sold; and/or
(b) is manufactured by using a process which is covered in whole or in
part by an issued, unexpired claim or a pending claim contained in
IMPROVEMENTS or the PATENT RIGHTS in the country in which any LICENSED
PROCESS is used or in which such product or part thereof is used or
sold.
1.4 A "LICENSED PROCESS" shall mean any process which is covered in whole
or in part by an issued, unexpired claim or a pending claim contained in
IMPROVEMENTS or the PATENT RIGHTS.
1.5 "NET SALES" shall mean LICENSEE's (and its sublicensees') billings for
LICENSED PRODUCTS and LICENSED PROCESSES produced hereunder less the sum of the
following:
(a) discounts allowed in amounts customary in the trade;
(b) sales, tariff duties and/or use taxes directly imposed and with
reference to particular sales;
(c) outbound transportation prepaid or allowed; and
(d) amounts allowed or credited on returns.
<PAGE>
-3-
No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by LICENSEE and on
its payroll, or for cost of collections. LICENSED PRODUCTS shall be considered
"sold" when billed out or invoiced.
1.6 "TERRITORY" shall be worldwide except for those countries in which
LICENSEE was asked to pay the cost of filing, prosecuting and maintaining the
PATENT RIGHTS pursuant to Article 6.2, and elected not to pay those costs.
1.7 "FIELD OF USE" shall mean all.
1.8 "PRODUCT AREAS" shall mean: Cardiovascular System Identification.
1.9 "SUBLICENSEE" shall mean a third party sublicensed by LICENSEE to
make, have made, use, lease and sell the LICENSED PRODUCT(S) and LICENSED
PROCESS(ES).
1.10 "IMPROVEMENTS" shall mean any and all modifications, refinements,
etc. dominated by the PATENT RIGHTS claims and conceived or reduced to practice
over the next three (3) years by Richard Cohen and his subordinates at M.I.T;
provided, however, that any rights to such IMPROVEMENTS granted herein are
subject to M.I.T. contractual commitments to third party sponsors of research
under which IMPROVEMENTS are made.
1.11 LICENSE AGREEMENTS shall mean "Assessing Myocardial Electrical
Stability", "Cardiac Electrical Imaging", "Cardiovascular System
Identification", and "Pacing Technology for Prevention of Cardiac Dysrhythmias."
1.12 "EFFECTIVE DATE" shall mean the day on which all four LICENSE
AGREEMENTS were executed.
ARTICLE 2 - GRANT
-----------------
2.1 M.I.T. hereby grants to LICENSEE the right and license to make, have
made, use, lease and sell the LICENSED PRODUCTS and to practice the LICENSED
PROCESSES in the TERRITORY for the FIELD OF USE to the end of the term for which
the PATENT RIGHTS are granted unless this Agreement shall be sooner terminated
according to the terms hereof.
2.2 LICENSEE agrees that LICENSED PRODUCTS leased or sold in the United
States shall be manufactured substantially in the United States, as required by
35 U.S.C.204.
2.3 In order to establish a period of exclusivity for LICENSEE, M.I.T.
hereby agrees that it shall not grant any other license to make, have made, use,
lease and sell LICENSED PRODUCTS or to utilize LICENSED PROCESSES in the
TERRITORY for the FIELD OF USE during the period of time commencing with the
EFFECTIVE DATE of this Agreement and terminating with the first to occur of:
(a) the expiration of twelve (12) years after the first commercial sale of
a LICENSED PRODUCT; or
<PAGE>
-4-
(b) the expiration of fifteen (15) years after the EFFECTIVE DATE of this
Agreement; provided, however, that if an application for premarket
approval has been submitted to the FDA for a LICENSED PRODUCT prior to
the expiration of that fifteen (15) year period, then the time spent
by that application in the FDA shall be added to the fifteen (15) year
period.
2.4 At the end of the exclusive period, the license granted hereunder
shall become nonexclusive and shall extend to the end of the term or terms for
which any PATENT RIGHTS are issued, unless sooner terminated as hereinafter
provided. The period of exclusivity may be extended upon the written consent of
M.I.T., which consent, subject to LICENSEE's diligent and successful
commercialization of the PATENT RIGHTS, shall not unreasonably be withheld.
2.5 M.I.T. reserves the right to practice under the PATENT RIGHTS and to
use and distribute to third parties for noncommercial research purposes.
2.6 LICENSEE shall have the right to enter into sublicensing agreements
for the rights, privileges and licenses granted hereunder only during the
exclusive period of this Agreement. Such sublicenses may extend past the
expiration date of the exclusive period of this Agreement, but any exclusivity
of such sublicenses shall expire upon the expiration of LICENSEE's exclusivity.
Upon any termination of this Agreement, sublicensees' rights shall also
terminate, subject to Paragraph 13.6 hereof.
2.7 LICENSEE agrees that any sublicenses granted by it shall provide that
the obligations to M.I.T. of Articles 2, 5, 7, 8, 9, 10, 12, 13, and 15 of this
Agreement shall be binding upon the sublicensee as if it were a party to this
Agreement. LICENSEE further agrees to attach copies of these Articles to
sublicense agreements.
2.8 LICENSEE agrees to forward to M.I.T. a copy of any and all sublicense
agreements promptly upon execution by the parties.
2.9 LICENSEE shall not receive from sublicensees anything of value in
lieu of cash payments in consideration for any sublicense under this Agreement,
without the express prior written permission of M.I.T. In the event LICENSEE and
M.I.T. agree on a cash equivalent value for the transaction and appropriate
royalty payments to M.I.T., M.I.T. shall provide its written consent.
2.10 The license granted hereunder shall not be construed to confer any
rights upon LICENSEE by implication, estoppel or otherwise as to any technology
not specifically set forth in Appendices CSI-A, CSI-B, and CSI-C hereof.
ARTICLE 3 - DUE DILIGENCE
-------------------------
3.1 LICENSEE either directly or through its SUBLICENSEES shall use its
best efforts to bring one or more LICENSED PRODUCTS or LICENSED PROCESSES to
market through an ongoing, thorough, vigorous and diligent program for
exploitation of the PATENT RIGHTS and
<PAGE>
-5-
to continue vigorous, ongoing, active, diligent marketing efforts for one or
more LICENSED PRODUCTS or LICENSED PROCESSES throughout the life of this
Agreement. Such efforts shall include, but shall not be limited to, conducting
clinical trials and evaluations necessary to obtain premarket FDA approval.
3.2 In addition, LICENSEE shall adhere to the following milestones:
(a) LICENSEE shall deliver to M.I.T. on or before three (3) month after
the EFFECTIVE DATE a business plan showing the amount of money, number
and kind of personnel and time budgeted and planned for each phase of
development of the LICENSED PRODUCTS and LICENSED PROCESSES in the
PRODUCT AREA and shall provide similar reports to M.I.T. on or before
December 31 of each year.
(b) LICENSEE shall raise and hold a minimum of Two Million Dollars
($2,000,000) aggregate in investment capital on or before the
EFFECTIVE DATE.
(c) LICENSEE shall have raised a total of Three Million Dollars
($3,000,000) cumulative in investment capital on or before one year
after the EFFECTIVE
DATE.
(d) LICENSEE and/or SUBLICENSEE shall have developed a working commercial
prototype of a LICENSED PRODUCT and, if needed for commercial sale,
shall have filed an application for premarket FDA approval before six
(6) years after the EFFECTIVE DATE of this License Agreement.
3.3 LICENSEE and/or SUBLICENSEE shall make commercial sales of LICENSED
PROCESSES at least according to the following schedule:
<TABLE>
<S> <C>
1997 $50,000;
1998 $100,000;
1999 $250,000;
2000 and each year thereafter $500,000.
</TABLE>
3.4 LICENSEE's failure to perform in accordance with Paragraphs 3.1, 3.2
and 3.3 above shall be grounds for M.I.T. to terminate this Agreement pursuant
to Paragraph 13.3 hereof.
3.5 If LICENSEE has diligently been pursuing the FDA approval required to
sell LICENSED PRODUCTS or products utilizing LICENSED PROCESSES on the
commercial market, and can demonstrate such diligence to M.I.T. by means of
written documents, then LICENSEE may request a reasonable revision to the sales
milestones in section 3.3, which revision shall not unreasonably be withheld.
ARTICLE 4 - ROYALTIES
---------------------
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay royalties to M.I.T. in the manner hereinafter provided to the end of
the term of the PATENT RIGHTS or until this Agreement shall be terminated:
<PAGE>
-6-
(a) License Issue Fee equal to the non-reimbursed sum spent by M.I.T.
prior to the OPTION PERIOD to file, prosecute, and maintain the PATENT
RIGHTS listed in Appendices CSI-A and CSI-B plus Nine Thousand Three
Hundred Seventy-Five Dollars ($9,375), such Issue Fee payable
according to the following schedule:
(i) One-third (1/3) of the non-reimbursed sum plus Six Thousand Two
Hundred Fifty Dollars ($6,250) is due upon the execution of this
Agreement;
(ii) One-third (1/3) of the non-reimbursed sum plus Three Thousand
One Hundred Twenty-Five Dollars ($3,125) is due one (1) year
after the EFFECTIVE DATE of this Agreement;
(iii) One-third (1/3) of the non-reimbursed sum is due two (2) years
after the EFFECTIVE DATE of this Agreement;
(b) For LICENSED PRODUCTS and LICENSED PROCESSES which do not contain a
substantial technical contribution, improvement, or change developed
by LICENSEE, Running Royalties in an amount equal to Two Percent (2%)
of the NET SALES of the LICENSED PRODUCTS leased or sold by/or for
LICENSEE and/or its SUBLICENSEE(S).
(c) For LICENSED PRODUCTS and LICENSED PROCESSES containing a substantial
technical contribution, improvement, or change developed by LICENSEE,
Running Royalties in an amount equal to One and One-Half Percent
(1.5%) of the NET SALES of the LICENSED PRODUCTS leased or sold by
SUBLICENSEE(S), or Twelve Percent (12%) of gross revenue received by
LICENSEE from SUBLICENSEE(S), whichever of the two above referenced
means of calculating sublicensing revenue yields a smaller number.
(d) License Maintenance Fees of Five Thousand Dollars ($5,000) per year
payable on January 1, 1995, January 1, 1996, January 1, 1997, January
1, 1998, and January 1, 1999; provided, however, that the License
Maintenance Fee and sublicense royalties subsequently due under
subparagraph 4.1(d) for each said year, if any, shall be creditable
against Running Royalties for said year.
(e) License Maintenance Fees of Ten Thousand Dollars ($10,000) per year
payable on January 1, 2000 and on January 1 of each subsequent year
thereafter during the exclusive period of this Agreement; provided,
however, that the License Maintenance Fee and sublicense royalties
subsequently due under subparagraph 4.1(d) for each said year, if any,
shall be creditable against Running Royalties for said year. No
License Maintenance Fees are due during the non-exclusive period of
this License Agreement.
4.2 All payments due hereunder shall be paid in full, without deduction of
taxes or other fees which may be imposed by any government and which shall be
paid by LICENSEE. If Royalties were paid on billings that were subsequently
uncollected, such overpaid Royalties will be deducted from those due in
subsequent periods.
<PAGE>
-7-
4.3 No multiple royalties shall be payable because any LICENSED PRODUCT,
its manufacture, use, lease or sale are or shall be covered by more than one
PATENT RIGHTS patent application or PATENT RIGHTS patent licensed under this
Agreement. If a single product is covered by more than one LICENSE AGREEMENT,
then the total royalty paid to M.I.T. on such product shall not exceed the
maximum royalty applicable to any single LICENSE AGREEMENT.
4.4 Royalty payments shall be paid in United States dollars in Cambridge,
Massachusetts, or at such other place as M.I.T. may reasonably designate
consistent with the laws and regulations controlling in any foreign country. If
any currency conversion shall be required in connection with the payment of
royalties hereunder, such conversion shall be made by using the exchange rate
prevailing at the Chase Manhattan Bank (N.A.) on the last business day of the
calendar quarterly reporting period to which such royalty payments relate.
ARTICLE 5 - REPORTS AND RECORDS
-------------------------------
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amounts payable to M.I.T. hereunder. Said books of account shall be kept at
LICENSEE's principal place of business or the principal place of business of the
appropriate division of LICENSEE to which this Agreement relates. Said books and
the supporting data shall be open at all reasonable times for three (3) years
following the end of the calendar year to which they pertain, to the inspection
of M.I.T. or its agents for the purpose of verifying LICENSEE's royalty
statement or compliance in other respects with this Agreement. Should such
inspection lead to the discovery of a greater than ten percent (10%) discrepancy
in reporting, LICENSEE agrees to pay half the cost of such inspection.
5.2 LICENSEE, within sixty (60) days after December 31, of each year,
shall deliver to M.I.T. true and accurate reports, giving such particulars of
the business conducted by LICENSEE and its sublicensees during the preceding
year under this Agreement as shall be pertinent to a royalty accounting
hereunder. These shall include at least the following:
(a) number of LICENSED PRODUCTS manufactured and sold by LICENSEE and all
sublicensees;
(b) total billings for LICENSED PRODUCTS sold by LICENSEE and all
sublicensees;
(c) accounting for all LICENSED PROCESSES used or sold by LICENSEE and all
sublicensees;
(d) deductions applicable as provided in Paragraph 1.5;
(e) total royalties due; and
(f) names and addresses of all sublicenses of LICENSEE.
<PAGE>
-8-
5.3 With each such report submitted, LICENSEE shall pay to M.I.T. the
royalties due and payable under this Agreement. If no royalties shall be due,
LICENSEE shall so report.
5.4 On or before the ninetieth (90th) day following the close of
LICENSEE's fiscal year, LICENSEE shall provide M.I.T. with LICENSEE's certified
financial statements for the preceding fiscal year including, at a minimum, a
Balance Sheet and an Operating Statement.
5.5 The royalty payments set forth in this Agreement and amounts due under
Article 6 shall, if overdue, bear interest until payment at a per annum rate two
percent (2%) above the prime rate in effect at the Chase Manhattan Bank (N. A.)
on the due date. The payment of such interest shall not foreclose M.I.T. from
exercising any other rights it may have as a consequence of the lateness of any
payment.
ARTICLE 6 - PATENT PROSECUTION
------------------------------
6.1 M.I.T. shall apply for, seek prompt issuance of, and maintain during
the term of this Agreement the PATENT RIGHTS in the United States and in the
foreign countries listed in Appendix CSI-B hereto. Appendix CS I-B may be
amended by verbal agreement of both parties, such agreement to be confirmed in
writing within ten (10) days. The prosecution, filing and maintenance of all
PATENT RIGHTS patents and applications shall be the primary responsibility of
M.I.T.; provided, however, LICENSEE shall have reasonable opportunities to
advise M.I.T. and shall cooperate with M.I.T. in such prosecution, filing and
maintenance of all patents and applications included within the PATENT RIGHTS.
6.2 Payment of all fees and costs relating to the filing, prosecution, and
maintenance of the PATENT RIGHTS shall be the responsibility of LICENSEE,
whether such fees and costs were incurred before or after the date of this
Agreement. LICENSEE shall have the right to approve the attorney selected by
M.I.T. LICENSEE may elect to discontinue all or a portion of the prosecution of
the PATENT RIGHTS, provided that LICENSEE gives M.I.T. reasonable notice, so
that M.I.T. may, at its own expense, elect to preserve those rights.
ARTICLE 7 - INFRINGEMENT
------------------------
7.1 Each party shall inform the other party promptly in writing of any
alleged infringement of the PATENT RIGHTS by a third party and of any available
evidence thereof.
7.2 During the term of exclusivity of this Agreement, LICENSEE shall have
the right, but shall not be obligated, to prosecute at its own expense all
infringements of the PATENT RIGHTS and, in furtherance of such right, M.I.T.
hereby agrees that LICENSEE may include M.I.T. as a party plaintiff in any such
suit, without expense to M.I.T.. The total cost of any such infringement action
commenced or defended solely by LICENSEE shall be borne by LICENSEE and LICENSEE
shall keep any recovery or damages for past infringement derived therefrom.
<PAGE>
-9-
7.3 If within six (6) months after having been notified of any alleged
infringement, LICENSEE shall have been unsuccessful in persuading the alleged
infringer to desist and shall not have brought and shall not be diligently
prosecuting an infringement action, or if LICENSEE shall notify M.I.T. at any
time prior thereto of its intention not to bring suit against any alleged
infringer then, and in those events only, M.I.T. shall have the right, but shall
not be obligated, to prosecute at its own expense any infringement of the PATENT
RIGHTS and M.I.T. may, for such purposes, use the name of LICENSEE as party
plaintiff. No settlement, consent judgment or other voluntary final disposition
of the suit may be entered into without the consent of M.I.T. and LICENSEE,
which consent shall not unreasonably be withheld.
7.4 In the event that LICENSEE shall undertake the enforcement and/or
defense of the PATENT RIGHTS by litigation, LICENSEE may withhold up to fifty
percent (50%) of the payments otherwise thereafter due M.I.T. under Article 4
hereunder and apply the same toward reimbursement of up to half of LICENSEE's
expenses, including reasonable attorneys' fees, in connection therewith. Any
recovery of damages by LICENSEE for each such suit shall be applied first in
satisfaction of any unreimbursed expenses and legal fees of LICENSEE relating to
such suit, and next toward reimbursement of M.I.T. for any payments under
Article 4 past due or withheld and applied pursuant to this Article 7. The
balance remaining from any such recovery shall be divided so that the fraction
of the recovery due M.I.T. is calculated by creating a fraction, the numerator
of which is the amount of royalties withheld, and the denominator of which is
the cost of litigation paid by LICENSEE, but in no event shall such sum be less
than Twelve Percent (12%) of the net recovery.
7.5 In the event that a declaratory judgment action alleging invalidity or
noninfringement of any of the PATENT RIGHTS shall be brought against LICENSEE,
M.I.T., at its option, shall have the right, within thirty (30) days after
commencement of such action, to intervene and take over the sole defense of the
action at its own expense.
7.6 In any infringement suit as either party may institute to enforce the
PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at the
request and expense of the party initiating such suit, cooperate in all respects
and, to the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like.
7.7 LICENSEE, during the exclusive period of this Agreement, shall have
the sole right in accordance with the terms and conditions herein to sublicense
any alleged infringer for future use of the PATENT RIGHTS. Any upfront fees as
part of such a sublicense shall be distributed according to Article 7.4; other
royalties shall be treated per Article 4.
<PAGE>
-10-
ARTICLE 8 - PRODUCT LIABILITY
-----------------------------
8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold M.I.T., its trustees, officers, employees
and affiliates, harmless against all claims and expenses, including legal
expenses and reasonable attorneys' fees, arising out of the death of or injury
to any person or persons or out of any damage to property and against any other
claim, proceeding, demand, expense and liability of any kind whatsoever
resulting from the production, manufacture, sale, use, lease, consumption or
advertisement of the LICENSED PRODUCT(s) and/or LICENSED PROCESS(es) or arising
from any obligation of LICENSEE hereunder.
8.2 Before delivery of a LICENSED PRODUCT, LICENSEE shall obtain and carry
in full force and effect liability insurance which shall protect LICENSEE and
M.I.T. in regard to events covered by Paragraph 8.1 above. Such insurance shall
be written by a reputable insurance company authorized to do business in the
Commonwealth of Massachusetts, shall list M.I.T. as an additional named insured
thereunder and shall require thirty (30) days written notice to be given to
M.I.T. prior to any cancellation or material change thereof. The limits of such
occurrence shall not be less than One Million Dollars ($1,000,000) per
occurrence with an aggregate of Three Million Dollars ($3,000,000) for personal
injury or death, and One Million Dollars ($1,000,000) per occurrence with an
aggregate of Three Million Dollars ($3,000,000) for property damage. LICENSEE
shall provide M.I.T. with Certificates of Insurance evidencing the same.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, M.I.T.
MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS
OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR
PENDING. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE
OR WARRANTY GIVEN BY M.I.T. THAT THE PRACTICE BY LICENSEE OF THE LICENSE GRANTED
HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY.
8.4 M.I.T. hereby represents and warrants, to the best of its knowledge
and belief, to LICENSEE that the execution, delivery and performance of this
Agreement by M.I.T. does not, and will not, violate any commitments or
undertakings to which M.I.T. may be bound.
ARTICLE 9 - EXPORT CONTROLS
---------------------------
It is understood that M.I.T. is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities
<PAGE>
-11-
(including the Arms Export Control Act, as amended and the Export Administration
Act of 1979), and that its obligations hereunder are contingent on compliance
with applicable United States export laws and regulations. The transfer of
certain technical data and commodities may require a license from the cognizant
agency of the United States Government and/or written assurances by LICENSEE
that LICENSEE shall not export data or commodities to certain foreign countries
without prior approval of such agency. M.I.T. neither represents that a license
shall not be required nor that, if required, it shall be issued.
ARTICLE 10 - NON-USE OF NAMES
-----------------------------
LICENSEE shall not use the names or trademarks of the Massachusetts
Institute of Technology, nor any adaptation thereof, nor the names of any of its
employees, in any advertising, promotional or sales literature without prior
written consent obtained from M.I.T., or said employee, in each case, except
that LICENSEE may state that it is licensed by M.I.T. under one or more of the
patents and/or applications comprising the PATENT RIGHTS. Such statements may
appear in the Private Placement Memoranda to be circulated by KBL Healthcare,
Inc., or in filings in compliance with securities laws. LICENSEE shall not use
the names or trademarks of the Massachusetts Institute of Technology, nor any
adaptation thereof, nor the names of any of its employees to imply that M.I.T.
endorses the LICENSED PRODUCTS sold by LICENSEE.
ARTICLE 11 - ASSIGNMENT
-----------------------
11.1 M.I.T. and LICENSEE agree that one of the main purposes of this
Agreement is for LICENSEE to add substantial technical value to the PATENT
RIGHTS.
11.2 LICENSEE may assign this agreement with M.I.T.'s written consent,
which consent shall not unreasonably be withheld, provided that LICENSEE has
fulfilled all the diligence milestones in Article 3, up to and including section
3.2 development of a working commercial prototype in the PRODUCT AREA.
Otherwise, LICENSEE shall have no right to assign, and any attempt to assign
shall be null and void.
ARTICLE 12 - DISPUTE RESOLUTION
-------------------------------
12.1 For any and all claims, disputes or controversies arising out of, or
in connection with this Agreement, including any dispute relating to patent
validity or infringement, which the parties shall be unable to resolve within
sixty (60) days, the party raising such dispute shall promptly advise the other
party of such claim, dispute or controversy in a writing which describes in
reasonable detail the nature of such dispute. By not later than five (5)
business days after the recipient has received such notice of dispute, each
party shall have selected for itself a representative who shall have the
authority to bind such party, and shall additionally have advised
<PAGE>
-12-
the other party in writing of the name and title of such representative. By not
later than ten (10) business days after the date of such notice of dispute, such
representatives shall schedule a date for a mediation hearing with the Cambridge
Dispute Settlement Center or Endispute Inc. in Cambridge, Massachusetts. If the
representatives of the parties have not been able to resolve the dispute within
fifteen (15) business days after such mediation hearing, the parties shall have
the right to pursue any other remedies legally available to resolve such dispute
in either the Courts of the Commonwealth of Massachusetts or in the United
States District Court for the District of Massachusetts, to whose jurisdiction
for such purposes M.I.T. and LICENSEE each hereby irrevocably consents and
submits.
12.2 M.I.T. is aware that Richard Cohen is a consultant to LICENSEE and is
conducting research in the field of the patent rights and that Richard Cohen is
obligated to assist LICENSEE in protecting inventions developed by him at
LICENSEE's laboratory. In the event that it is unclear whether a particular
invention in the nature of an improvement is developed by Richard Cohen in the
context of his consulting activity with LICENSEE or in the context of his
activities as a University Professor at M.I.T., M.I.T. will approach LICENSEE in
good faith to negotiate a reasonable resolution.
12.3 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
ARTICLE 13 - TERMINATION
------------------------
13.1 If LICENSEE shall cease to carry on its business, this Agreement
shall terminate upon notice by M.I.T.
13.2 Should LICENSEE fail to make any payment whatsoever due and payable
to M.I.T. hereunder, M.I.T. shall have the right to terminate this Agreement
effective on thirty (30) days' notice, unless LICENSEE shall make all such
payments to M.I.T. within said thirty (30) day period. Upon the expiration of
the thirty (30) day period, if LICENSEE shall not have made all such payments to
M.I.T., the rights, privileges and license granted hereunder shall automatically
terminate.
13.3 Upon any material breach or default of this Agreement by LICENSEE,
other than those occurrences set out in Paragraphs 13.1 and 13.2 hereinabove,
which shall always take precedence in that order over any material breach or
default referred to in this Paragraph 13.3, M.I.T. shall have the right to
terminate this Agreement and the rights, privileges and license granted
hereunder effective on ninety (90) days' notice to LICENSEE. Such termination
shall become automatically effective unless LICENSEE shall have cured any such
material breach or default prior to the expiration of the ninety (90) day
period.
<PAGE>
-13-
13.4 LICENSEE shall have the right to terminate this Agreement at any time
on six (6) months' notice to M.I.T., and upon payment of all amounts due M.I.T.
through the effective date of the termination.
13.5 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination. LICENSEE and any sublicensee
thereof may, however, after the effective date of such termination, sell all
LICENSED PRODUCTS, and complete LICENSED PRODUCTS in the process of manufacture
at the time of such termination and sell the same, provided that LICENSEE shall
pay to M.I.T. the Running Royalties thereon as required by Article 4 of this
Agreement and shall submit the reports required by Article 5 hereof on the sales
of LICENSED PRODUCTS.
13.6 Upon termination of this Agreement for any reason, any sublicensee
not then in default shall have the right to seek a license from M.I.T. M.I.T.
agrees to negotiate such licenses in good faith under reasonable terms and
conditions.
ARTICLE 14 - PAYMENTS, NOTICES
------------------------------
AND OTHER COMMUNICATIONS
------------------------
Any payment, notice or other communication pursuant to this Agreement shall
be sufficiently made or given on the date of mailing if sent to such party by
certified first class mall, postage prepaid, addressed to it at its address
below or as it shall designate by written notice given to the other party:
In the case of M.I.T.:
Director
Technology Licensing Office
Massachusetts Institute of Technology
Room E32-300
Cambridge, Massachusetts 02139
In the case of LICENSEE:
President
Cambridge Heart, Inc.
645 Madison Avenue, 14th Floor
New York, NY 10022
ARTICLE 15 - MOST FAVORED LICENSEE
----------------------------------
If, during the non-exclusive period of this Agreement, M.I.T. grants a
license to another party under more favorable terms as a whole than those in
this Agreement, LICENSEE may, at no extra cost, elect a license under the more
favorable terms as a whole. M.I.T. shall notify and provide a copy to LICENSEE
within thirty (30) days of granting any license to a third party: provided,
however, that M.I.T. shall not have to identify said third party to LICENSEE.
<PAGE>
-14-
ARTICLE 16 - MISCELLANEOUS PROVISIONS
-------------------------------------
16.1 This Agreement shall be construed, governed, interpreted and applied
in accordance with the laws of the Commonwealth of Massachusetts, U.S.A., except
that questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent was granted.
16.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
16.3 The provisions of this Agreement are severable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
16.4 LICENSEE agrees to mark the LICENSED PRODUCTS sold in the United
States with all applicable United States patent numbers. All LICENSED PRODUCTS
shipped to or sold in other countries shall be marked in such a manner as to
conform with the patent laws and practice of the country of manufacture or sale.
16.5 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the
day and year set forth below.
MASSACHUSETTS INSTITUTE OF CAMBRIDGE HEART, INC.
TECHNOLOGY
By: /s/ Lita L. Nelsen By: /s/ Marlene Krauss
------------------------------------------ ----------------------------
Name: LITA L. NELSEN Name: MARLENE KRAUSS
--------------------------------------- --------------------------
Title: DIRECTOR, TECHNOLOGY LICENSING OFFICE Title: Chair
-------------------------------------- -------------------------
Date: Sept 28, 1993 Date: 9/29/93
--------------------------------------- --------------------------
<PAGE>
-15-
APPENDIX CSI-A
--------------
UNITED STATES PATENT RIGHTS
M.I.T. Case No. 4227
U.S. Patent 4,777,960
"Method and Apparatus for the Assessment of Autonomic Response
by Broad-Band Excitation"
By Ronald Berger, Jerome P. Saul, Ming Hui Chen, and Richard J. Cohen
M.I.T. Case No. 4738
U.S. Patent 4,930,517
"Method and Apparatus for Physiologic System Identification"
By Richard J. Cohen, Marvin Appel, and Ronald Berger
M.I.T. Case No. 4820
U.S. Patent 4,979,110
"Characterizing the Statistical Properties of a Biological Signal"
By Richard J. Cohen and Paul Albrecht
<PAGE>
-16-
APPENDIX CSI-B
--------------
Foreign countries in which PATENT RIGHTS shall be filed, prosecuted and
maintained in accordance with Article 6:
M.I.T. Case No. 4227
Japan: Allowed
EPC: Pending In
France
Germany
United Kingdom
M.I.T. Case No. 4738
PCT: Pending In
Canada
EPO
Japan
M.I.T. Case No. 4820
Canada: Pending In
EPC: Regional Phase
Japan National Phase
<PAGE>
-17-
APPENDIX CSI-C
--------------
COPYRIGHTABLE MATERIAL AND TANGIBLE PROPERTY
Cardiovascular System Identification Code.92
X-100 Software Amplifier/Filter Circuit Diagrams
<PAGE>
EXHIBIT 11
CAMBRIDGE HEART, INC.
COMPUTATION OF UNAUDITED PRO FORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
FOR THE
FOR THE THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
Net loss............................................. $(2,496,958) $ (666,466)
=========== ==========
Weighted average shares outstanding:
a. Shares attributable to common stock outstand-
ing............................................. 3,126,569 3,164,153
b. Shares attributable to certain common stock op-
tions(1)........................................ 330,233 319,011
c. Shares attributable to the assumed conversion of
Series A and B convertible preferred stock out-
standing upon closing of initial public offer-
ing............................................. 4,107,306 4,455,708
----------- ----------
Unaudited pro forma weighted average common and
common equivalent shares outstanding................ 7,564,108 7,938,872
=========== ==========
Unaudited pro forma net loss per share............... $ (0.33) $ (0.08)
=========== ==========
</TABLE>
- --------
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock and common stock options issued during the twelve
months prior to the Company's initial registration statement on Form S-1
have been included in the above computation as if outstanding for the
entire period, even if such impact is anti-dilutive.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 24, 1996,
relating to the financial statements of Cambridge Heart, Inc., which appears
in such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Financial Data" in such Prospectus. However, it should
be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Financial Data."
Price Waterhouse LLP
Boston, Massachusetts
May 30, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,948,147
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 118,865
<CURRENT-ASSETS> 4,115,382
<PP&E> 161,978
<DEPRECIATION> 45,910
<TOTAL-ASSETS> 4,277,360
<CURRENT-LIABILITIES> 266,421
<BONDS> 0
0
8,911
<COMMON> 3,163
<OTHER-SE> 3,998,865
<TOTAL-LIABILITY-AND-EQUITY> 4,277,360
<SALES> 68,047
<TOTAL-REVENUES> 68,047
<CGS> 141,312
<TOTAL-COSTS> 141,312
<OTHER-EXPENSES> 2,669,639
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,496,958)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,496,958)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,496,958)
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>Historical loss per share has not been presented on the basis that it is not
meaningful.
</FN>
</TABLE>
